Read the Minutes, Fade the Presser

Warsh's explanation of the July hold was not the Committee's. Heading into September, the FOMC minutes have the reaction function that matters.

The July FOMC minutes and the press room, July 29, 2026. Source: Federal Reserve.

Yesterday, the Fed published the minutes of its July FOMC meeting. Together with the statement and the press conference directly after the meeting three weeks ago, we now have a fairly complete picture of Kevin Warsh’s second meeting as Chair, and it’s an unusual picture. The Chair's account of the decision to hold and the Committee's record of it do not tell the same story. Warsh came to the Fed calling for regime change, and signs suggest change is well underway, at least in how the Fed communicates. As today’s post explains, there are lessons for investors and the public in how to listen to the Fed.

Press Conference 101

Expectations are central in the conduct of monetary policy, and that includes expectations about the press conference.

On March 24, 2011, a week before Kevin Warsh stepped down as a Fed Governor, the Fed announced that it would hold regular press conferences; it gave the following explanation:

Chairman Ben S. Bernanke will hold press briefings four times per year to present the Federal Open Market Committee's current economic projections and to provide additional context for the FOMC's policy decisions …

The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication. The Federal Reserve will continue to review its communications practices in the interest of ensuring accountability and increasing public understanding.

Alongside presenting the forecasts (a tool of forward guidance), the purpose was to explain the current decision. The overarching intent was greater accountability and public understanding.

At the first press conference on April 27, 2011, in his opening remarks, Ben Bernanke explained the role of the Chair in that setting:

Throughout today’s briefing, my goal will be to reflect the consensus of the Committee, while taking note of the diversity of views as appropriate. Of course, my remarks and interpretations are my own responsibility.

Later in the press conference, Bernanke was asked to elaborate on why the Fed took that historic step. He set the press conference in the context of years of efforts to increase transparency at the Fed. The principles were clear:

And I personally have always been a big believer in providing as much information as you can to help the public understand what you're doing … and to be accountable to the public for what you're doing. … the counterargument has always been … that the Chairman speaking might create unnecessary volatility in financial markets … It was our judgment, after thinking about this for some time, that at this point, the additional benefits from more information, more transparency, meeting the press directly, outweigh some of these … risks.

Accountability has been the core goal from the start, and the Chair is the Committee’s messenger. In July, Warsh fell short on both counts, breaking a precedent set in his final week at the Board fifteen years ago.

Why did the Fed hold rates in July?

At the time of the July meeting, PCE inflation was an estimated 3.7% and had been above the Fed’s 2% target for more than five years, while the unemployment rate was low and steady. In the statement, the FOMC reasserted its commitment to deliver price stability, so why did it leave the federal funds rate unchanged?

The FOMC minutes that we received this week offer an explanation (the details are in the “Participants' Views” section): most Fed officials believed inflation would step down over the rest of the year as the inflationary effects of energy supply disruptions and tariffs wane. The soft inflation data in June supported that thesis, but it was not decisive. The labor market was in balance, with unemployment near its longer-run level, so there was no urgency from the other side of the mandate. Officials also noted that little had changed in their assessments since the June meeting only six weeks earlier. Holding rates in July allowed the Fed to gather more information before its September meeting. The Committee saw inflation risks as skewed to the upside, and many officials would favor raising rates if inflation does not decline. Several were already in favor of a hike in July, including the three voting dissenters.

Whether you agree or disagree with its decision to hold, the Committee’s explanation is firmly anchored in economic data and uses risk-management principles familiar to the Fed. The FOMC has not undergone a regime change in how it decides policy.

Scroll back three weeks to Warsh’s press conference; that’s where the regime change was, and it went well beyond the lack of guidance about future Fed actions. Warsh did not accurately explain the Committee’s current decision or its thinking about economic and financial market developments. Investors and the public, with only Warsh’s words and a nearly unchanged statement after the meeting, had to wait three weeks for the minutes to correct the record.

Do the data matter?

At the press conference, several journalists asked Warsh about the decision to hold rates. Claire Jones from the Financial Times asked whether the cool June CPI print played a role. Warsh downplayed the inflation data:

So, in two words, not much—not much—I'd like to believe that the Committee shares my views, which is the historic problem with data dependence is the data and the dependence. We are not relying on any one individual piece of data as cover or as an excuse or as validation. What I care about, and what I think the Committee cares about, is trends on the data. Sure, we got some encouraging inflation data. … So we'll be—we'll be watching inflation data over the period ahead, but I also don't want you to leave the misimpression that we're sort of breathlessly waiting that. … I wouldn't say we overly relied on, on any one piece of data, including that data, which surprised some a couple of weeks ago. [Emphasis added.]

I remember being puzzled by that answer and near certain the Committee did not share his views. I was right. Per the minutes, "most participants anticipated that inflation would step down over the rest of the year," and the June data were the first evidence for that thesis. Jones had it right: the cool print was part of the hold narrative. More striking is Warsh’s "breathlessly waiting" line. The Committee's stated reason for holding was that information arriving before September "could provide more clarity" about the inflation outlook. Waiting for data was not a misimpression to be corrected; it was the rationale.

Was there a pause?

Edward Lawrence at Fox Business pressed Warsh to “drill down” and explain specifically what the reason for the pause was. Warsh questioned the premise:

So I wouldn't characterize what we did as anything like a pause. I would characterize what we did as a rigorous review of the economic situation. I would characterize what we did as a review of the big, hard questions. … If you were to try to force a description that this was a pause, I would say financial market prices would take the other side of that. … Did the Fed take an explicit change in its policy rate today? No. But I think that's the beginning of the story, not the end of the story.

Let's start with the facts, since Warsh says the statement offers just the facts: "the Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent." That's a pause. And the minutes don't dance around it: the Committee held because information arriving before September "could provide more clarity" about inflation. Waiting for clarity is what a pause is. Warsh called the decision “the beginning of the story, not the end of the story.” Fair enough. But the Chair is the Fed's storyteller, and this one is proving unreliable.

Did markets do the Fed’s job?

In a series of replies to Neil Irwin at Axios, Michael McKee at Bloomberg Radio and TV, and Ann Saphir at Reuters about the decision to hold, Warsh returned each time to the increase in market interest rates:

To Irwin:

So rates are higher today than they were 42 days ago. Markets have made decisions because we stepped back, in part, from trying to influence those. Market judgments have moved up on what nominal rates are across the Treasury curve … And these prices that we see in financial markets is one of the many ways in which [monetary policy] affects the real economy. We’ll be continuing to watch that market information—see how it responds to incoming events—and that can help inform our decisionmaking when we meet in seven or eight weeks.

To McKee:

And so, so if I look at the Treasury curve, if I look at the dollar, if I look at a lot of things that are internals inside of financial markets, I think what they’re broadly saying is that this Committee does own it—has the credibility to deliver it. And they believe, like I do, that we will. But I don’t want to leave you with a misimpression—we’ve got no magic wand. This isn’t something that we’re going to be able to carry out in days or weeks. But we’re going to deliver on the responsibility that Congress gave us, and today’s meeting—and the preparation for today’s meeting—was an important step towards that destination.

To Saphir:

We’re going to deliver on the remit. You don’t have to take my word for it. If you look broadly at market prices, they are certainly not saying “all clear,” but they are working in concert to, to keep us on our toes, and they have tightened financial conditions in this intermeeting period. And, and that has given us a—that has provided us some—some comfort that, that we’ve got the ability and capability to deliver.

Warsh’s emphasis on financial markets is one of his defining characteristics as Chair, but the minutes show it is not a defining characteristic of the Warsh Fed. Nowhere in the minutes are higher market rates cited as the reason for the Fed’s hold. In fact, they said, “various participants suggested that financial conditions had tightened over the intermeeting period … partly a reflection of strong economic growth and market expectations that the Committee would adopt a more restrictive policy stance before long.” In minutes parlance, “various” is far short of a consensus, and even those participants did not suggest higher market rates were a substitute for Fed action. They described it as markets anticipating a hike. The Fed’s own markets desk told the Committee the same thing: financial markets had fully priced a 25 basis point hike by the September meeting.

Markets do not do the Fed’s job for it; they are expecting the Fed to do its job. It’s unsurprising that as markets heard Warsh speak, they cut the September pricing. If the Committee had been at the podium instead, the reaction might have been different. The back-and-forth in the Fed’s messaging has real-world consequences.

What are you reacting to?

Jonnelle Marte at Bloomberg asked Warsh about his reaction function directly, and Warsh answered with a reaction function, but it was his own, not the Committee's:

… Any central banker, especially a central banker where the labor markets are more or less at equilibrium—any central banker, when he or she sees underlying inflation moving higher—he or she is more inclined to tighten policy. Again, when you’ve achieved the other side of your mandate and you see underlying inflation falling, he’s more inclined to loosen policy.

That’s my reaction function, and I don’t suspect it will cause people to not continue to pry for more …

Warsh’s simple reaction function misses the actual challenge facing the Committee. The question is not whether inflation is moving higher; it’s whether it is moving down to 2%. That’s clear in the minutes, where the closest-to-consensus reaction function is: “many participants assessed that policy tightening would likely be necessary if inflation did not decline.” The gap between Warsh’s reaction function and the Committee’s is information. It takes seven votes to change policy. Warsh has one. The rest of the Committee has eleven. Heading into September’s vote, follow the Committee's framing, not the Chair's.

In closing.

Comparing the Committee's words in the minutes with the Chair's at the press conference was the point of this post: the regime change is real, and it is not where Warsh says it is. Forward guidance is gone from the press conference, but so is an accurate description of the Committee's decision. Dropping forward guidance is defensible; dropping accountability is not. Warsh says the statement offers just the facts. Why the Committee held is a fact, too, and it was missing on decision day. Warsh brings new priorities and new ideas to the Fed; that is his right as Chair, and innovation can serve the institution well. But the old rule of thumb, that the Chair speaks for the Committee, does not yet apply to this one. Until it does, downweight the presser and upweight the minutes. The question I would put to Warsh: how does confusion, sold as regime change, improve monetary policy?