LIVE MARKETS-Warsh's push for a quieter Fed draws warnings from some Wall Street strategists

At the Fed's July policy meeting, Chairman Kevin Warsh reportedly floated the idea of holding fewer scheduled monetary policy meetings, a move some strategists say reflects a broader push to shrink the central bank's footprint in financial markets.

“Fewer meetings could advance Warsh's objective of a Fed that casts a smaller shadow over financial markets,” strategists at Barclays said.

If adopted, the move would not only depart from almost five decades of Fed precedent but would also stand as the most consequential operational shift under Warsh's leadership to date.

According to Goldman Sachs, Warsh's ambitions extend well beyond dropping forward guidance on rates. “He would like financial markets to learn to play the ball, not the referee,” the bank said.

Goldman noted that participants in short-term interest rate markets, where the Fed matters most, price what they think the Fed will do, not what it should do, meaning less Fed disclosure would simply leave markets working from thinner, less reliable information.

That, Goldman argued, risks two problems. First, markets could underreact to data the Fed cares about, delaying how quickly that information gets priced into yields, making it more likely that monetary policy changes end up being destabilizing rather than stabilizing.

Second, markets could overreact to information they mistakenly believe matters to the Fed, producing swings in financial conditions that later unwind.

Meanwhile, Barclays said cutting meetings to shrink the Fed's market footprint could backfire, since concentrating fewer signals into fewer events could increase market sensitivity to the remaining policy meetings by concentrating more information and uncertainty into a smaller number of policy events.

The Fed has held eight scheduled meetings a year since 1981, a cadence established under former Chair Paul Volcker. In emergencies — such as during the early days of the COVID-19 pandemic or during the 2007-2009 global financial crisis — Fed leaders have convened unscheduled meetings, either over the phone or in person, to address those exigent circumstances.