Of all the ways Chairman Kevin Warsh wants to remake the Federal Reserve, the least flashy may be the most lasting: He is cutting the number of interest-rate decisions the central bank makes each year.
A new calendar released Thursday shows how. The Fed will still meet eight times a year but will vote on rates only seven times. Its October meeting will be devoted to strategy, with no vote on rates and no policy statement. In 2028, it will move to just six interest-rate decisions.
The revamped meeting schedule "is more than some administrative detail," he said when previewing the forthcoming revamp last month. It is "yet another change to get the conduct of monetary policy on the right track."
Warsh has already shortened statements and news conferences, stopped submitting forecasts and launched five task forces to rethink how the Fed operates. Starting next fall, rate-setting meetings will be held roughly every two months, instead of roughly every six weeks.
Why the calendar matters, according to Warsh
Warsh has long argued that central bankers talk too much and overemphasize the most recent piece of economic data. In a 2014 review for the Bank of England, he recommended cutting its monthly policy meetings to between six and eight a year. The bank moved to eight in 2016.
Officials were doing too much meeting preparation "and not enough time doing this crazy thing: thinking hard about what's happening," he said at a 2017 Dallas Fed event.
Some economists say the calendar has been ripe for a refresh. The current cadence was set in the early 1980s, when officials paid closer attention to the money supply and built meetings around those releases and the chair's testimony to Congress, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.
Changing that to meetings every two months "allows for an opportunity to completely standardize the set of data they have at each meeting," Luzzetti said. The cost of waiting two extra weeks in between decisions is modest, he said.
Warsh met in August with Georgetown University economist Masaaki Yoshimori, who argued in a working paper published earlier that month that six regular meetings of the Federal Open Market Committee, or FOMC, would serve the Fed about as well as eight. His simulations found eight produced slightly better outcomes, but he concluded the difference didn't justify the burden of extra meetings.
By law, the FOMC must meet at least four times a year.
Volcker's calendar
Some Fed officials have suggested that while they didn't share Warsh's sense of urgency to make the change, they haven't objected. Richmond Fed President Tom Barkin said this month it would help if officials met after major data releases rather than just before them. The consumer-price index, for instance, comes out the day after next month's meeting.
But a new rhythm could bring surprises, Barkin said. With as long as 10 weeks between rate decisions, the Fed might need to move rates in bigger steps than the traditional quarter point. Paul Volcker, chairman when the current schedule was adopted, considered an eight-week interval "unduly long," according to the 1980 memo outlining it.
What Sweden's central bank did
Other central banks have gone both ways. Sweden's Riksbank cut its meetings to five a year from six starting in 2020, arguing that producing six full economic forecasts a year added little and that the freed-up staff time could go to deeper research and outreach. Four years later, after the postpandemic inflation surge, it reversed course and moved to eight meetings. It said more chances to make decisions would let it adjust policy faster and bring it in line with most of its peers.
How fewer interest-rate decisions would change the Fed
For the Fed, fewer rate decisions could, in theory, mean less commentary from officials who often fan out to give speeches and interviews in the run-up to or aftermath of decisions. Cutting the number of rate decisions by a quarter would leave fewer opportunities to steer expectations.
That doesn't mean investors would pay any less attention to them, said Luzzetti. If anything, each decision could become a bigger event when there are fewer of them, marginally raising the stakes for whatever officials have to say about them.