Waller plans to launch a reform of the Federal Reserve's communication framework starting from the June FOMC meeting: the dot plot may be eliminated and forward guidance bias removed.

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The new Federal Reserve chair, Kevin Warsh, is preparing to implement the most profound institutional overhaul in decades at the world’s most influential central bank, with a core focus targeting its approach to market communication.

According to a recent report by the Financial Times, several former senior Fed officials expect Warsh to initiate reforms as early as the Federal Open Market Committee (FOMC) meeting in mid-month.

Specific measures include: refusing to submit individual rate forecasts in the quarterly “dot plot,” and removing “easing” or “tightening” bias language from policy statements that suggest the direction of the next move. This series of changes will fundamentally alter the way the Fed communicates with Wall Street.

Expectations of these reforms have already had a direct impact on the markets. The dot plot has long been an important anchor tool for the bond, currency, and equity markets, whose frequent changes often trigger significant asset price volatility. Once Warsh implements these measures, investors will face greater uncertainty regarding the interest rate path, and the market’s interpretation of Fed policy signals may be forced to fundamentally change.

Warsh Clearly Opposes Forward Guidance, Shows Strong Will for Reform

Warsh was sworn in by President Trump in May this year, succeeding Powell as Fed chair. He has long made his opposition to forward guidance clear in public statements.

At his Senate confirmation hearing in May, Warsh stated explicitly: “Unlike many of my former and current colleagues, I do not believe in forward guidance. I do not think I should pre-announce to you what our future decisions might be.” Afterwards, both President Trump and Treasury Secretary Besant stated publicly that Warsh intended to reduce forward guidance.

Warsh also criticized the dot plot for causing officials to stick to their original judgments after economic realities have changed, thus leading to policy mistakes. Former senior Fed official and current BNY Investments Chief Economist Vincent Reinhart commented: “Warsh recognizes that the Fed is not an especially good forecaster, and doing something it is not good at does not enhance its credibility. “If you don’t think the job is worthwhile, you probably won’t want to take part in it, either.”

An Internal Consensus Has Formed to Remove Bias Language

There is already clear consensus within the FOMC to remove bias language from policy statements.

The current “easing bias” in Fed statements has previously faced criticism from several policymakers. In April’s FOMC vote, three regional Fed presidents—Beth Hammack, Lorie Logan, and Neel Kashkari—voiced objections, citing the potential for the Iran war to trigger a new round of inflationary pressures. Subsequently, Fed Governors Christopher Waller and Lisa Cook both stated that the easing bias language should no longer be retained in policy statements.

Former Fed Vice Chair and current PIMCO Global Economic Advisor Richard Clarida believes the timing is favorable for Warsh: “All the conditions are aligned, Warsh will see this as a bonus, and the committee will too—that is, to directly remove all guidance language in the June statement.”

Debate Over the Fate of the Dot Plot: Tension Between Market Anchor Function and Reform Logic

The dot plot was introduced in 2012 by former Fed Chair Ben Bernanke, requiring the 19 FOMC members to submit quarterly rate forecasts covering the next one, two, and three years as well as the long-run neutral rate. Although originally intended as “soft guidance,” its market influence has far exceeded its original purpose.

Blake Gwinn, head of US rates strategy at RBC Capital Markets, said: “Whether you love it or hate it, the dot plot provides a very important anchoring mechanism.” Janney Montgomery Head of Fixed Income Guy LeBas also believes that the dot plot helps “moderate rate volatility.”

However, some FOMC members have long been discontented with the dot plot, believing market overinterpretation has deviated from its initial intent. Former Kansas City Fed President Esther George pointed out that the dot plot “was initially seen as a form of soft guidance, but since then, market interpretation has far exceeded its intended use, and it is now viewed as a guide to the rate path.”

There are also voices opposing the abolition of the dot plot. Former St. Louis Fed President James Bullard believes that abandoning the dot plot would go against the “international norm” of providing sufficient policy information to the market, noting that “easing” or “tightening” bias language was used as far back as the tenure of Alan Greenspan (1987–2006)—and Warsh himself has repeatedly said he wishes to emulate Greenspan’s style.

Though the direction of reform is now basically clear, the institutional inertia of the Fed may make the process slower than expected. Reinhart stated: “The entire communication system is a massive edifice, and he must chisel away at it bit by bit. The Fed will not change that fast.” Some current and former officials prefer to establish a new framework first before abandoning the old one, rather than tear it down rashly.

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