Fed Divided: Warsh Aims to Return to the Greenspan Era

Odaily News: Federal Reserve Chair Kevin Warsh is pushing a disruptive communications revolution inside the Fed. He advocates sharply reducing the Fed's public hints about the future path of interest rates, weakening or even possibly eliminating the closely watched quarterly "dot plot," and instead letting investors price assets on their own based on economic data.

In Warsh's view, overly transparent forward guidance has turned market prices into an "echo chamber" of the central bank's own rhetoric, distorting the ability of asset prices to reflect the real economy.

However, as soon as this new policy of embracing silence was tested, it stirred up a surging wave of opposition within the Fed. Many policymakers said bluntly that the central bank's responsibility to manage expectations is indispensable, and that deliberately staying silent not only fails to bring rationality, but instead causes markets to frequently fall into violent swings due to a lack of reference points.