Warsh wants to keep markets guessing. Will it work?

The Federal Reserve’s new chair, Kevin Warsh, held his first press conference and did something unusual: he gave no hints about what comes next. No forward guidance, no signaling about whether an interest rate hike is coming. The markets immediately priced in at least one quarter-point increase by the end of the year. But according to people who know Warsh, that might be exactly the wrong read. The new chair wants markets to stop guessing what the Fed is thinking and start looking at the data instead. The question is whether that will actually work, or whether it will just make markets more volatile.

The oil market’s risk premium lesson

Before getting to the Fed, the episode opened with a look at oil prices, which have settled around $79 a barrel for Brent crude. That is well below the $150 or $200 a barrel that some analysts predicted after disruptions in the Strait of Hormuz, a critical chokepoint through which 20 million barrels of oil per day normally move. Robin Brooks of the Brookings Institution explained that those extreme forecasts were always unlikely. He ran the numbers back in March and concluded the maximum possible price spike was $125 a barrel, which is roughly where prices topped out. The reason, Brooks argued, is that the academic research on how oil markets work—specifically the concept of price elasticity of demand—was validated by this episode. The sca