"New Federal Reserve News Agency": Top Federal Reserve officials clash over policy direction—how far can Waller's "silent strategy" go?

Divergences Emerge within the Federal Reserve over Communication Strategies; Walsh's “Say Less” Approach Faces Resistance from Colleagues.

On October 27, “The New Fed Wire Service” journalist Nick Timiraos published an article noting that Federal Reserve Chair Walsh has been pushing a new communication style of "silence is golden," but has failed to convince a majority of his colleagues to follow suit. As a result, the committee has sent out noisy and fragmented signals to the market, causing the market-implied probability of a rate hike in October to plummet from 70% to 15% in just one month.

The article notes that, between the end of the last policy meeting and the start of the current week’s blackout period, 16 Federal Reserve officials who have served at least one year have collectively given no fewer than 59 speeches, interviews, and public statements—broadly on par with about 54 such events during the same period last year.

This figure indicates that, although Walsh has deliberately constrained his own remarks since becoming chair last May, other officials have eagerly filled the gap, each expounding their own views.

The direct consequences of this divergence have already become apparent in the market. After the Fed’s rate hike last month, the market interpreted Walsh’s comments at the press conference as raising the likelihood of consecutive rate hikes; subsequently, both vice chairs signaled that they were not in a hurry to act again, and the probability of an October hike quickly declined.

Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Company, stated:

If Walsh doesn’t speak, others will fill that void.

The essence of this debate is not whether to resume commitment-based forward guidance—almost no officials want to return to the approach used before 2021, as excessively explicit rate commitments then were seen as delaying the Fed’s response to inflation.

The article points out that the core disagreement is whether officials should still explain to the public how they will respond to economic changes.

Walsh’s position is clear. He believes that continuously laying out policy outlooks will lock officials into their own forecasts, while also impairing the signals that markets can send to the Fed. Earlier this month in Bangkok, he stated:

I’m not going to say now what I might do at the remaining meetings this year. This is a new chapter for the Fed—we don’t do that anymore.

Richmond Fed President Tom Barkin, a supporter of this stance, also told reporters that he is “very pleased this seems to be becoming institutional practice.” Barkin consistently discusses the economic outlook but almost never comments on specific meetings.

However, several officials have spoken out in defense of more comprehensive communication.

Cleveland Fed President Beth Hammack argued in a speech this month that if households or businesses “take on debt based on a misreading of policy direction, it can come at a very high cost.”

In an interview, she emphasized that explaining one’s framework is not the same as making a commitment:

What people hear from me is not a commitment, because I have not given a commitment; I am explaining a framework.

St. Louis Fed President Alberto Musalem, in his speech in London, directly rebutted the logic that “saying less lets the market focus on data,” saying that when a central bank is secretive about its own framework, “it does not lead the market to focus on data—speculation only creates noise.”

He added:

The choice for a central bank is not between excessive noisy commitments and utter silence, but rather between letting the public guess and actively informing them.

Both Hammack and Musalem took office in 2024, both come from financial industry backgrounds, and both have consistently been advocates for further rate hikes this year.

This communication “experiment” underwent a rapid stress test after last month’s rate hike.

Nick Timiraos points out that the market inferred a higher likelihood of back-to-back rate hikes from Walsh’s statements and economic data, but subsequent comments from the vice chairs countered that inference, suggesting no rush to act again—and market expectations reversed accordingly.

Fed Governor Christopher Waller described this episode as highlighting the limits of sharply cutting forward guidance, saying it was equivalent to “throwing out the baby with the bathwater,” and commented:

I can’t think of anything that looked more like forward guidance than what happened that week.

Former Fed Vice Chair Donald Kohn said that, before sending such powerful signals to the market, he used to share his remarks with then-Chair Greenspan or Bernanke for their feedback.

He noted that neither ever objected. Kohn said:

The current situation shows that at least some committee members are uneasy with a lack of forward guidance, because the market is moving ahead of where the committee wants to steer it.

Complicating the situation further, current officials not only disagree on their economic outlooks, but the policy path itself also lacks a unified narrative.

The article notes that some officials believe monetary policy is obviously still too loose; others view this round of rate hikes more as insurance against the risk that years of high inflation expectations become entrenched in pricing behavior.

UBS chief U.S. economist Jonathan Pingle said that, under normal circumstances, the chair’s remarks could provide common language for others to reference. Having the chair speak for the committee “can offer some kind of coherence, and I think that is what’s missing at the moment.”

Former Fed economist Claudia Sahm described the current situation as “the worst possible outcome out of all potential results.” She said:

No one can force him to speak for the committee—and frankly, he can’t make other committee members stay quiet either.

Currently, a working group composed of outside experts is drafting recommendations for the Fed’s communication strategy, to be submitted by year-end. Walsh said any changes must be approved by the full committee.