Warsh announced the task forces during his first post-meeting press conference Wednesday. 

The first task force will focus on Fed communications, the second on the Fed’s balance sheet, the third on the use and reliance on existing data sources, a fourth on productivity and jobs, and the final task force will examine the Fed’s inflation frameworks.

“These subjects are timely, consequential, and in my view worthy of a fresh look,” Warsh said at the press conference.

He said members of the task forces will be from both inside and outside the economics profession and will be supported by subject-matter specialists on the Fed’s staff.

“They’ll have a straightforward charge — start with first principles, ask hard questions, examine current practice, consider alternatives, and ultimately propose next steps for policymaker consideration,” the new chairman said.

The Washington Examiner spoke with three former Fed officials to understand what might come from the task forces.

Task force on communications

The first task force that Warsh announced last week will examine how the Fed communicates with the public and, in turn, investors and the markets.

“The one that will probably lead to the most change, because it’s already happened, or happening, is probably the communications framework,” said Steve Kamin, a senior fellow at the American Enterprise Institute and former Federal Reserve official who worked at the central bank for over three decades.

During his confirmation hearing, Warsh said he thinks there is too much “forward guidance” from the Fed, referring to the practice of stating in advance how monetary policy will be conducted in the months ahead. Forward guidance became routine starting after the 2008 financial crisis, when the Fed set its interest rate target at zero and could lower it no further. To further the stimulus, officials pledged to keep monetary policy looser for longer.

Kamin told the Washington Examiner that he expects the Fed might curtail some of the projections it has become accustomed to releasing in recent years. That includes the summary of economic projections that the monetary policy committee releases every other meeting. It publishes projections for gross domestic product, inflation, and unemployment.

The Fed has taken to providing those materials in the name of transparency and giving markets insight into the committee’s thinking. But investors have complained at times that the information coming from the central bank can be contradictory and overwhelming.

But the task force might go even beyond that and into how the central bank communicates in other ways. For instance, the statement from the Fed after last week’s meeting was noticeably shorter than such statements under Powell.

Dennis Lockhart, a former president of the Federal Reserve Bank of Atlanta, told the Washington Examiner that the task force will likely “review all methods of communications,” including statements from the monetary policy committee and speeches from the officials.

“I think the bigger question is the degree of transparency the Fed and the committee want to achieve and what they think is the right amount of information that’s best for achieving their economic objectives,” he said.

Historically, the Fed put out far less information. In the early part of Chairman Alan Greenspan’s tenure, the central bank would not even put out a statement to inform the public that it was changing its interest rate target, nor did it release minutes from its meetings or host press conferences.

Thomas Hoenig, a senior fellow at the Mercatus Center and former president of the Federal Reserve Bank of Kansas City, said he expects “a much more limited communications framework” following the task force.

“I think primarily it will focus on the minutes, it will focus on whether you really need a press conference after every meeting … if there’s nothing new or important, should you have a meeting? Those kinds of discussions will take place,” Hoenig told the Washington Examiner.

Task force on the Fed’s balance sheet

Warsh also announced that one task force will be focused on the central bank’s balance sheet, which Warsh has repeatedly said he wants to shrink.

The Fed’s balance sheet stood near $4.1 trillion just before the pandemic. After buying bonds at a massive scale to counter the pandemic recession, its assets soared to nearly $9 trillion. They have fallen to $6.7 trillion in the following years as the Fed has normalized monetary policy.

As part of the post-financial-crisis monetary policy regime, the Fed has paid banks interest for keeping reserves at the central bank. Today, banks keep $3 trillion in Fed reserves, an amount that officials have described as ample.

The new Fed chairman said Wednesday that the task force will “review the benefits and risks of the current ample reserves regime and the composition of the Fed’s balance sheet.”

“They will assess alternative frameworks for the conduct and operation of monetary policy,” he added.

Lockhart said the Fed may encounter “financial stability reality” if it tries to sell off the trillions of dollars of Treasury and mortgage-backed securities it holds on its balance sheet.

Lockhart said that an all-Treasury balance sheet is a “worthy goal” and was considered and discussed when he was still at the Fed.

“I think that will be reviewed, and my guess is that, in all likelihood, they’ll go to an all-Treasury balance sheet, and that would prioritize the runoff of the mortgage-backed securities portfolio,” he said. He added, though, that it would have to be looked at in a very careful and analytical way.

Hoenig said that shrinking the balance sheet would be a difficult undertaking.

Task force on the reliance on existing data sources

During his press conference, Warsh said the third task force will be targeting the Fed’s reliance on existing data sources.

The chairman said the task force “will evaluate new information sources and consider methodological changes to improve data gathering.”

The Fed mostly relies on government data in making its interest rate decisions, meaning it lost access to critical information when the record-breaking government shutdown delayed key surveys. Still, the Fed does produce some of its own in-house data, including for industrial production and credit.

The Trump administration also courted controversy after Trump fired Bureau of Labor Statistics Commissioner Erika McEntarfer, whom the president accused of overseeing “rigged” jobs numbers. The move drew condemnation from many in the economics space.

Hoenig said the task force will likely examine whether the data sources the Fed relies on can be improved.

“Are there other sources, maybe private sources, prices from the internet, these sorts of things that will give them at least another comparison point in terms of inflation and demand?” Hoenig said.

Kamin, a longtime Fed official, said the data side of things is pretty far down the list of priorities in his mind. He noted the sheer volume of economists who work in the research and statistics section of the Fed.

“I mean, honestly, there’s hundreds of economists working at the Fed in different areas — do you think that they don’t analyze every possible source of data that they can think of?” Kamin said.

Task force on productivity and jobs

Warsh also announced that there will be a task force designed to survey the economic impact, reach, and pace of new general-purpose technologies, most notably artificial intelligence. The task force will look at how those changes weigh on the Fed’s inflation and employment mandates.

“I think that’s mostly about AI’s impact on employment,” Lockhart said.

AI has exploded in popularity in recent years and has pushed the stock market higher.

Some believe that the new wave of AI will bring about a productivity boom — but experts are divided on just how much AI will affect the labor market.

“I don’t think it’s going to move productivity up to [5%] and 6%, I just don’t think that, it would take years,” Hoenig said.

He added that he thinks the jobs and productivity task force will have longer legs because of the challenging research it will have to contend with.

Prior to the Iran war and subsequent inflation wave, Warsh and some others had argued that the rise of artificial intelligence would lead to a productivity boom that would allow for lower interest rates. Now, it appears that judgment is being withheld pending the findings of this task force.

Task force on inflation frameworks

Finally, Warsh announced a task force to look into the Fed’s inflation frameworks.

The chairman said the fifth task force “will examine the drivers of inflation, first principles, and weigh the full range of ideas for delivering price stability in a changing economy.”

Inflation has been the top economic concern in recent years. Consumer price index inflation rose four-tenths of a percentage point to 4.2% for the year ending in May — the highest rate of annual inflation since April 2023. That is well above the Fed’s 2% goal, although that goal is measured by a different index.

Of note, Lockhart pointed out that Warsh indicated pretty plainly during the press conference that the Fed wasn’t reconsidering that 2% target. Some economists and policymakers have argued that the Fed might need to reassess that target.

“We have the capability and commitment to deliver on price stability of 2%, and that’s exactly what we’re going to do,” Warsh said Wednesday.

Lockhart said the task force might look at how the underlying inflation trend is estimated.

WARSH FACES SIMILAR TRAP TO THE ONE THAT LED TO HUGE INFLATION IN 2022

“Possibly this will overlap with the data sources task force in that there could be modernized methods of collecting price information and bringing it to the attention of the Fed more rapidly, that’s possible,” he said.

Hoenig said that while the Fed is certainly not changing the 2% target now, he said there is no reason the task force could not at least consider that possibility as part of its mandate.