• Kevin Warsh is reportedly considering fewer scheduled policy meetings to reduce the Fed's market influence.
  • Goldman Sachs (GS) and Barclays warn the strategy could backfire, leading to misread signals and higher volatility.
  • The Fed has held eight scheduled meetings annually since 1981, and any change would be a significant shift.

A Quieter Fed? Not So Fast, Wall Street Says

Kevin Warsh's efforts to make the Federal Reserve less of a market mover are hitting resistance from an unexpected quarter: the very banks that trade on its every word. According to people familiar with the matter, the Fed chair has been trimming post-meeting communications and is now considering fewer scheduled policy meetings as part of a broader push to reduce the central bank's influence on markets. But Goldman Sachs and Barclays are warning that the strategy could backfire, causing markets to misread economic signals and making each decision more volatile.

The Fed has held eight scheduled meetings annually since 1981, a rhythm that has become deeply ingrained in market behavior. Any reduction would represent a profound change in how the central bank communicates, and Wall Street is already debating the implications.

"A quieter Fed might seem like a good idea in theory," said a senior economist at a major investment bank, speaking on condition of anonymity. "But in practice, less communication could lead to more uncertainty and bigger market swings."

Warsh, who has been vocal about his belief that the Fed's constant guidance has made markets overly dependent on central bank support, has begun implementing changes. Investors have noticed the shift, with some welcoming it as a return to a more traditional Fed approach. Others, however, are concerned that without regular guidance, markets will struggle to price in economic changes, leading to sharp repricing when surprises occur.

"The risk is that we see a repeat of the 2013 taper tantrum, but on a more frequent basis," said a rates strategist at a European bank. "When you remove the Fed's guiding hand, markets can overreact to data."

So far, the reaction in markets has been mixed. While some asset prices have adjusted to the prospect of less Fed communication, others have shown signs of unease. A senior trader at a New York hedge fund noted, "The uncertainty is palpable. We're all trying to figure out what the Fed is thinking, but with fewer signals, it's like flying blind."

The Fed has not officially commented on the discussions, and attempts to reach out for comment were unsuccessful. However, the central bank's next scheduled meeting is set for September, and all eyes will be on whether Warsh follows through on his plans.

As the debate continues, one thing is clear: the era of the ultra-transparent Fed may be coming to an end, and Wall Street is not sure it's ready for that.

This article was updated to reflect the latest market reactions and analyst commentary.