MNI INTERVIEW: Fed Seen Pulling Guidance On Rates - English

Federal Reserve policymakers are likely to remove interest rate guidance from their policy statement next week, and new Chair Kevin Warsh could announce reviews of the central bank's communications and the balance sheet, former director of the Fed Board's division of monetary affairs William English told MNI.

"I think there's agreement on the committee, more or less, at this point that they don't want to provide any particular direction for policy. So I think that sentence probably goes," he said about the Fed's rate guidance in the FOMC post-meeting statement. 

At the April meeting, officials were split on whether to remove the easing bias that described that the Fed will consider the "extent and timing of additional adjustments to the target range of the federal funds rate." Three Fed officials in April dissented over the inclusion of an easing bias in the statement. 

Warsh and the FOMC may see interests overlap, English said. "I think he's in the happy situation where he's been saying for kind of philosophical reasons he doesn't want to provide any guidance. I'm not sure the committee agrees with him on that, but at the moment in this particular situation they don't have any guidance to give."

"They'll provide no guidance on where rates might go up or down from here and and that will work for everybody, at least in the near term," said English, a former secretary to the Federal Open Market Committee and now at Yale University.

REVIEWS

The June FOMC meeting may mark the beginning of bigger picture projects initiated by the new chair, English said. (See: MNI INTERVIEW: Warsh Could Overhaul SEP, Drop Dot Plot - Lewis) 

"It's likely the new Federal Reserve chair will announce a new look at the central bank's communications," he said. The FOMC considered changes to its communications policies last year under Chair Jay Powell. Warsh "may well say at the press conference that they're going to initiate work on" the balance sheet as well.

"I do think we'll hear about what what are his intentions on moving these ideas forward," he said. 

English suggested Warsh may not submit his rate forecast or any forecast at all for the SEP, noting that then-Chair Alan Greenspan didn't provide forecasts for the Monetary Policy Report. "That wouldn't be without precedent," he said. (See: MNI POLICY: Warsh Could Reshape Fed On Rates, Communication)

SCENARIOS

The Fed should take a wait-and-see approach toward the recent increase of inflation, English said. He can see a rate cut or hikes over time.

"The underlying strength in demand, employment, and so on has been a little greater than I maybe expected. The economy seems to be on pretty solid footing. On the other hand, the inflation news is not so great but it depends a great deal on what happens in terms of some sort of agreement in the Gulf and we just don't know what's going to happen."