US Daily Less Information, More Noise

Economics Research 3 August 2026 | 6:09AM EDT

US Daily: Less Information, More Noise

n Fed Chairman Kevin Warsh has argued that providing less information about the Jan Hatzius | Fed’s reaction function will prompt financial market participants to evaluate the Goldman Sachs & Co. LLC

state of the economy on its own terms, not filtered through the lens of likely FOMC responses. He would like markets to “learn to play the ball, not the referee” and thinks that this will enable the FOMC to obtain more “direct and unfiltered” information about the economy from markets. n The problem with this approach is that participants in short-term interest rate markets—where Fed communication matters most—price what they think the Fed will do, not what it should do. This remains true if the FOMC provides less information about its reaction function, except that markets will then be more error-prone. Such a shift will not provide policymakers with more reliable information. It could, however, lengthen the lags of monetary policy and introduce unnecessary volatility into financial conditions and the real economy.

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Fed Chairman Kevin Warsh is reportedly considering a reduction in the number of scheduled FOMC meetings and press conferences. This would reinforce other signals— including a much shorter FOMC statement and more limited discussion of the economic outlook in the FOMC press conferences—that Warsh wants to provide less information about Fed policy to the public and financial markets than his predecessors.

Warsh’s desire for changes goes well beyond the elimination of forward guidance about the path of the funds rate. Specifically, Warsh argued in the July 29 FOMC press conference that providing less information about the Fed’s reaction function will prompt market participants to evaluate the state of the economy on its own terms, not filtered through the lens of likely FOMC responses. He would like financial markets to “learn to play the ball, not the referee.” In turn, he thinks that this will enable the FOMC to obtain more “direct and unfiltered” information about the state of the economy from markets.

The fundamental problem with this approach was articulated in a recent Bloomberg column by Bill Dudley. Participants in short-term interest rate markets—where the Fed matters most—price what they think the Fed will do, not what it should do. This will remain true if the FOMC provides less information about its thinking, except that markets then have less information and potentially more inaccurate beliefs on which to base their thinking. Such a shift will not provide policymakers with a more reliable source of information about the real economy.

It could, however, have two undesirable effects. At times, markets might underreact to a piece of data that matters to the Fed, so the policy change only gets discounted in the yield curve at the FOMC meeting (which might be long after the data release, especially if the number of meetings is reduced). Compared with a situation where markets have better information about the Fed’s reaction function, this means that interest rates (and broader financial conditions) react later to the new data, and the impact on the real economy also occurs later. This increases the lags of monetary policy, and therefore the likelihood that monetary policy changes end up being destabilizing rather than stabilizing.

At other times, markets might overreact to a piece of information that they think matters for the Fed’s view of the economy but actually doesn’t. If so, interest rates and broader financial conditions will move temporarily in a direction that is ultimately unwound when the Fed fails to deliver on market expectations. This implies unnecessary volatility in both financial conditions and the impulse from financial conditions to the real economy.

This second concern would be much more serious if Fed officials used market prices not only to glean information about the economy but also as a guide to what they should do.…