Being a central banker has never been an easy job. As the author and journalist Neil Irwin recounted in his 2013 book “The Alchemists,” the man frequently regarded as the first member of the profession, a seventeenth-century Swedish financier named Johan Palmstruch, was tried for fraud and sentenced to death after the institution he headed came close to collapse. Outside of dictatorships, modern central bankers generally don’t have to fear for their lives, but they are sometimes subjected to heavy criticism. During the early nineteen-eighties, when Paul Volcker, the chair of the Federal Reserve, raised interest rates to twenty per cent in the face of rampant inflation, furious farmers blockaded the Fed’s headquarters with their tractors. Alan Greenspan, Volcker’s successor, became known as the Maestro after presiding over rapid growth combined with low inflation and financial deregulation. But, shortly after Greenspan retired in 2006, the great financial crisis of 2007-08 destroyed his reputation, and Democratic senators hauled him up to Capitol Hill for a grilling.

Kevin Warsh, the current Fed chair, has only been in office since May, but he’s already under fire—and for good reason. Last week, Warsh and his colleagues on the Federal Open Market Committee (F.O.M.C.), the Fed’s policymaking body, met and voted 9–3 to keep the key policy rate unchanged—a decision that, on the face of it, was unremarkable. But, at a post-meeting press conference, Warsh gave a series of evasive answers to questions about the Fed’s stance, and bond traders reacted by selling off long-term Treasury bonds, which the U.S. government relies on to finance its gaping budget deficit. The yields on these instruments, which move in the opposite direction to bond prices, reached the highest level since before the financial crisis of 2007-08.

The sell-off “looks very much like a loss of confidence trade,” one market analyst told the Financial Times. Another commentator, Dario Perkins, an economist at the research firm TS Lombard, compared Warsh’s press conference to Donald Trump’s announcement last year of his “Liberation Day” tariffs and to the disastrous U.K. mini-budget that cost Liz Truss her job as Prime Minister in 2022, describing them all as occasions “where you suddenly realize global policymakers are totally out of their depth and don’t know what they are doing.” Even some ex-Fed officials, who tend to be more guarded in their public comments, voiced concerns. In an interview with Bloomberg, James Bullard, a former president of the Federal Reserve Bank of St. Louis, described Warsh’s press conference as “a little bit rocky” and the bond market’s reaction as “nerve wracking for a central banker.” Loretta Mester, who headed the Cleveland Fed from 2014 to 2024, told the Wall Street Journal, “I want to feel comfortable that the Fed knows what it is doing. I don’t think it’s sustainable what he’s doing, in terms of not saying anything.”

To be sure, the sell-off in long-term bonds doesn’t mean another financial blowup is imminent. It does mean that the Treasury Department will have to pay more interest on the debt it issues—payments that already cost the government a sum comparable to the Pentagon’s budget. Home buyers will face higher mortgage rates, and Warsh will be forced to confront a credibility problem. Last year, when Trump was looking for someone to replace Jerome Powell as Fed chair, Warsh positioned himself as an inflation dove who would deliver lower interest rates. At the time, inflation seemed quiescent. But, a month after Trump nominated Warsh in January, the President launched his ill-conceived war on Iran, which caused oil prices to skyrocket and changed the inflation picture for the worse. Between February and June, the inflation rate rose from 2.4 per cent to 4.2 per cent, well above the Fed’s two-per-cent target, prompting the question of whether it should raise rates.

At Warsh’s first policy meeting, in June, the F.O.M.C. voted to stand pat, keeping the federal funds rate in a range of 3.5 to 3.75 per cent. However, the new chair repeatedly stressed his commitment to meeting the Fed’s inflation target, and many Wall Street observers took him to be an inflation hawk at heart. Many of them pencilled in a rate hike for September, if not sooner. At last week’s meeting, though, Warsh spoke largely in platitudes and generalizations. When he was asked why he hadn’t been persuaded by the arguments of the three F.O.M.C. members who voted for an immediate rate hike, he dodged the question. At another point, he suggested that the financial markets, in bidding up long-term rates, had already done some of the Fed’s inflation-fighting work.

Warsh’s stated motive for saying so little is that he believes the Fed should no longer provide the markets with any “forward guidance” on its intentions, lest it lock itself into an undesirable policy path. He says that this happened in 2021, when inflation shot up and the Fed initially failed to respond. The merits of this argument can be debated—and will be debated by one of the task forces that Warsh has appointed to review how the Fed operates. In the meantime, though, a reluctance to provide forward guidance is surely no justification for not providing any current guidance either, which is where Warsh appears to have landed. As last week demonstrated, this is a recipe for confusion, uncertainty, and higher borrowing costs.

The irony is that Warsh, if he were more open, could have made a strong argument for the Fed’s inaction without compromising his inflation-fighting credentials. Even though inflation has risen this year, higher energy costs account for most of the rise, and there is little sign of a generalized price spiral. Moreover, between mid-May and early July, as the U.S. and Iran reached a ceasefire agreement, oil prices tumbled. The over-all Consumer Price Index for June fell by 0.4 per cent. Since then, the ceasefire has collapsed, and the oil price has rebounded. But nobody can be sure what will happen next, and it seems reasonable for the Fed to wait another couple of months to see how things pan out, while remaining ready to raise rates if inflation doesn’t ease.

Evidently, most of Warsh’s colleagues on the F.O.M.C. hold this position—eight of them voted with him to hold the funds rate steady—and it remains a bit of a mystery why he didn’t articulate the rationale more fully. One conceivable explanation is that he welcomes the higher long-term interest rates that accompany heightened uncertainty about the Fed’s intentions, because it means markets will price risk more cautiously, which could be healthy in the long term. “Granted, injecting uncertainty premia into markets isn’t the sort of thing that any central banker we can think of has tried before,” Toby Nangle, a reporter at the Financial Times, noted. “But it sort of provides some quantum of internal coherence to Warsh’s comments and actions.”

A more cynical view is that Warsh’s primary goal is to avoid incurring Trump’s wrath by raising rates before the midterms, and that explains why he is so unwilling to give any hostages to fortune. If, for instance, he were to say publicly that he and his colleagues would base their decision on the July and August inflation figures, and those figures came in worse than expected, he might have little choice but to support a rate hike in September and avoid Truth Social. Better to say nothing of note and leave himself a little wriggle room.

In a way, Warsh is a throwback to old-school central bankers who prized their absolute discretion in decision-making and rarely said or did anything that might compromise it. In a 1988 speech, Greenspan quipped, “I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I said.” Warsh has praised Greenspan’s “strong and steady leadership” of the Fed, but he hasn’t dwelled on the fact that the Maestro eventually came around to the virtues of talking straight and using forward guidance to influence financial markets. In 2003, Greenspan’s Fed issued a statement that said interest rates could remain low for “a considerable period”—precisely the sort of message that Warsh says should be avoided.

Fed watchers are now eager to see if Warsh is more open at his next big public appearance, a speech later this month at the central bank’s annual retreat in Jackson Hole, Wyoming. In any case, though, the commotion over his communication strategy is symptomatic of the larger challenge he faces: demonstrating that he is, in fact, independent of Trump. Unless and until he convinces people of this, bond traders and commentators will react skeptically to his every comment, or refusal to comment, and who can blame them? Since Warsh’s term as Fed chair doesn’t end until May of 2030, he still has time to change his approach, but right now he seems determined to fulfil his pledge of “regime change” at the central bank. On Friday, the Times reported that he is considering reducing the number of F.O.M.C. meetings each year from its current total of eight, a change that could mesh with a desire for less transparency. For Warsh and Fed watchers alike, the next four years seem likely to be long and bumpy.♦