During an interview with Bloomberg Television on Monday, Cohn said Warsh is trying to reduce the market’s reliance on Fed guidance and encourage investors to make decisions based on economic data.

  • Cohn said investors had become used to the Fed clearly signaling its plans after the 2008 financial crisis.
  • Last week, a New York Times report stated that Warsh is considering reducing the number of the Fed’s policy meetings as part of a broader effort to reform the central bank.
  • The Federal Reserve kept interest rates unchanged last week, marking Warsh’s second decision as chair.

IBM Vice Chairman Gary Cohn said the markets have become overly dependent on the Federal Reserve signaling its next policy move, arguing that Fed Chair Kevin Warsh is steering the central bank back to a more traditional style of policymaking that relies less on forward guidance and more on market interpretation.

During an interview with Bloomberg Television on Monday, Cohn said Warsh is taking the Fed back to its traditional way of operating, where policymakers give markets fewer hints about future decisions.

Markets Have Been Too Reliant On Fed Signals, Says Cohn

He said investors had become used to the Fed clearly signaling its plans after the 2008 financial crisis, making markets “addicted” to guidance.

“From the 2008 period on, the Fed has been an open book. They’ve been completely transparent. They have not done anything that you wouldn't know they would do hours or weeks or months before they did it. And the market became addicted to knowing what the Fed was going to do. What Kevin is doing right now is he’s trying to get the market off the addiction of me, the Fed chairman and the Fed board, having to tell you what we’re going to do,” Cohn said.

Warsh Pushes Return To Traditional Fed Communication

Cohn added that Warsh is trying to reduce the market’s reliance on Fed guidance and encourage investors to make decisions based on economic data rather than waiting for clues about the central bank’s next move.

“And you, the market and you participants, you should go and participate however you think it makes sense for you and wherever you think the opportunities are,” he said, adding that it “is a tough transition.”

Warsh has taken a markedly different approach since becoming Fed chair earlier this year. Rather than signaling the likely path of future rates, Warsh has repeatedly declined to provide detailed forward guidance, saying policy decisions will depend on incoming economic data.

Warsh Reportedly Looking At Broader Central Bank Reforms

Last week, a New York Times report stated that Warsh is considering reducing the number of the Fed’s policy meetings as part of a broader effort to reform the central bank. Since taking over in May, he has shortened post-meeting statements, reduced the Fed’s use of forward guidance, and is also weighing fewer press conferences after policy decisions.

The Federal Reserve kept interest rates unchanged last week, marking Warsh’s second decision as chair and the fifth straight meeting without a rate change.

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, as well as the SPDR Dow Jones Industrial Average ETF (DIA), were up 1%, while the Invesco QQQ Trust (QQQ) jumped 1.4%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bearish’ territory. 

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