If the question’s what to expect from Kevin Warsh at the July FOMC meeting, I’m afraid I don’t know the answer.

He’d probably say that’s just as well. The Fed’s officially out of the forward guidance business, according to its new chief. That means markets are meant to fly largely blind into each policy meeting.

I doubt that’ll prove sustainable. My guess is Warsh will do a lot more “guiding” during his tenure than he intends. Every Fed chair, just like every US president, ends up confronting a crisis or two during his or her term, and when that happens, Warsh will feel compelled to placate investors not just with rate cuts, but with implicit promises to put a floor under America’s too-big-to-fail equity market.

But that comes later. For now, Warsh will attempt to “say less,” which makes his decision to hold a press conference this Wednesday notable. Remember: Nothing says the Fed chair has to speak to reporters after every policy gathering. Janet Yellen didn’t. She reserved press engagements for SEP meetings.

Warsh is keen on the idea that verbosity isn’t synonymous with transparency and that talking for the sake of it can do more harm than good if you’re the Fed. I don’t vehemently disagree, but that’s not the same as saying I wholeheartedly endorse Warsh’s position.

The “problem” in a general sense is that Warsh is breaking with a lot of post-GFC communications precedent. Even if that’s a good thing in theory, it could prove disruptive in practice, at least until markets get used to it.

Moreover, Warsh may be underestimating the extent to which rates can corner the Committee. The Fed can’t get too far offside relative to the US front-end. The optics are bad, and if the macro doesn’t “prove” the Fed’s position correct in relatively short order, policy has to catch up to market pricing.

That nods to a potential point of ironic failure for Warsh’s contention that markets should trade the data rather than the Fed’s expected reaction function. Put as a question: What does a Fed that’s sworn off forward guidance do when policymakers think markets have it “wrong” vis-à-vis the policy implications of incoming information?

Warsh would answer by saying the market will find out it was wrong when the Fed doesn’t take the expected action at its next decision. But that’s only as tenable as the disconnect is narrow. In other words: The wider the disparity between the market’s expectations for policy and what policymakers plan to deliver, the more pressure on policy to conform. That being the case, Warsh’s “say less” mantra is of debatable utility.

The takeaway isn’t so much that Warsh is “wrong” that the Fed should eschew excessive signaling. Rather, the question’s whether that’s too idealistic 18 years on from Lehman. Warsh has acknowledged (explicitly) that the Fed can’t go back to a pre-GFC balance sheet framework even in the most aggressive scenarios for a smaller SOMA. I wonder if it’s occurred to him the same might be true of Fed communications.

In any case, if it’s uncertainty Warsh wanted, he’s got it: Markets are pricing roughly one-third odds of a hike at this month’s meeting, due almost entirely to recent developments in the Mideast and the read-across from $100 Brent for inflation. I think the real odds are much lower than that, but I suppose we’ll find out soon enough.

Assuming no “TACO” Tuesday for The White House’s Iran strategy, the best course of (in)action for Warsh the following day is probably a very hawkish hold. But Warsh’s overhaul of the FOMC statement (it’s no longer a de facto editorial) means the announcement itself can’t convey much more than the policy decision. He could use the press conference to impart a hawkish spin, or otherwise convey the Fed’s growing angst with what’s now a five-month energy supply shock, but what is that if not forward guidance?

For now, the only thing that really matters is that market-based measures of longer-term inflation expectations remain tame, even as estimates of long run neutral are the highest in nearly a quarter century.

The figure above’s from BMO’s Ian Lyngen. It shows a proxy for the neutral rate (blue line) alongside a market-based measure of the 10-year inflation outlook (red line).

“While [the r-star proxy] has risen by hundreds of basis points over the past few years, long-run inflation expectations have remained well anchored,” Lyngen remarked, adding that the latter “have been trending below 2.50% for the past few weeks, and the 100-day moving average is currently at its lowest since 2022.”

This is where the rubber really meets the road. What does it say when markets’ long-term inflation expectations are stable in the face of an escalatory rise in a proxy for long run neutral? It says, as Lyngen put it, that “the market remains confident in the Fed’s ability and willingness to control inflation.”

The emphasis on “willingness” is mine. And you should read my italics as: Color me skeptical unless and until Donald Trump decides inflation is a bigger domestic political threat than a stock selloff.