Top of Mind Assessing a less transparent Fed

ISSUE 151 | August 19, 2026 | 1:30 PM EDT

TOPof MIND ASSESSING A LESS TRANSPARENT FED Fed Chairman Kevin Warsh is steering the Fed into a less transparent era. So, is that a positive or negative development, and what could it mean for markets and the economy? We speak with Former Fed governors Donald Kohn and Stephen Miran as well as GS’ Jan Hatzius who agree that rigid “Odyssean” forward guidance that commits policymakers to a pre-set path risks policy mistakes and is therefore rarely appropriate. But they somewhat disagree about the benefits of greater transparency around the Fed’s reaction function. Hatzius and Kohn argue that such transparency helps markets better anticipate and price in policy changes, accelerating monetary policy transmission. But Miran believes that the line between committing to a path and being transparent is clearer in theory than in practice. And while GS economists and strategists find that reduced transparency leads to increased market volatility, the question is whether this just increases the market’s noise or also improves the market’s signal. Hatzius argues largely for the former and Miran for the latter.

INTERVIEWS with… Jan Hatzius, Chief Economist and Head of Global Investment Research, Goldman Sachs “Markets price what they think the Fed will do, not what they think the Fed should do. That will remain true even if the Fed obscures its reaction function… market guesses about the Fed’s next moves will simply become worse, leading to more volatility... and importantly, volatility that serves no constructive economic purpose.”

Donald Kohn, former Vice Chairman of the Board of Governors of the Federal Reserve System, Robert V. Roosa Chair in International Economics and Senior Fellow, Brookings Institution “I sympathize with Chairman Warsh to some extent. [But] the real problem with Warsh’s approach is his reluctance to articulate how the FOMC sees the economy evolving… explaining the Fed’s thinking about the economic outlook is essential in helping markets act as a stabilizing force and is a core component of accountability.”

Stephen Miran, former Member of the Federal Reserve Board of Governors and Chairman of the Council of Economic Advisers, Senior Strategist, Hudson Bay Capital Management “Reducing guidance generates more volatility but also more signal... I'd rather have that signal, even if it's messy, than throw the signal out by anchoring market expectations to the Fed's near-term projections.”

ALSO inside… Transparency: more benefits than costs | Joseph Briggs and Megan Peters, GS Global Economics Research A less transparent Fed and US rates | William Marshall, GS Rates Strategy Research Fed communication and FX volatility | Michael Cahill and Lexi Kanter, GS FX Strategy Research Fed: more transparent than most | Joseph Briggs and Megan Peters, GS Global Economics Research

Allison Nathan | Jenny Grimberg | Ashley Rhodes |

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We provide a brief snapshot on the most important economies for the global markets US Japan Latest GS proprietary datapoints/major changes in views Latest GS proprietary datapoints/major changes in views • No major changes in views. • No major changes in views. Datapoints/trends we’re focused on Datapoints/trends we’re focused on • US consumer spending, which we expect to slow, with risks • Recent US-Japan coordinated Yen intervention, which we skewed to the downside as the Strait of Hormuz remains think is unlikely to sustainably strengthen the Yen. closed and further rises in gas prices would hurt consumers. • BoJ policy; we expect the BoJ to continue hiking gradually, • US labor market; following weak July payroll growth, we estimate that the underlying pace of job growth now stands with the next hike in January 2027, but the risks are skewed at 5k, well below our estimate of breakeven job growth. toward an earlier rate hike, potentially as early as October. • US inflation, which has improved meaningfully in the past • Japan consumption tax cut; while we think the tax cut will…