“His point is that by giving forward guidance, the Fed impacts behavior which then they take into account to make their decision,” Green said. “His thought is maybe we should let the markets actually tell us where things are going rather than necessarily trying to point the market in a particular direction based upon forward guidance.”
Chairs before Yellen, including Alan Greenspan, gave considerably less forward guidance than has become standard practice, according to Green. Warsh’s decision not to submit his own dot plot projection raised its own questions about the tool’s future.
“By doing that in and of itself, he introduces a little uncertainty to the value of the dot plot going forward if the key member of the Fed, the Chairman, is not participating in it,” he said.
On the unanimous vote, Warsh chose long-term credibility over short-term political points by voting for a hold instead of a cut, Green noted.
“In the short run, there was nothing to gain in it,” he said. “In the long run, there may be a lot of benefit in terms of him developing a greater rapport with the people, where he may need to convince them at a later date when the vote might be much closer, and he may have greater influence.”
