Warsh Wants Fewer Fed Meetings: What It Means for Investors

Kevin Warsh, the new chairman of the Federal Reserve, has put forward a proposal that, if confirmed, would represent the most significant operational change at the American central bank in over four decades: reducing the number of regular monetary policy meetings.

Currently, the Fed holds eight scheduled meetings per year, a cadence established in 1981 by then-chairman Paul Volcker during the fight against double-digit inflation in the United States. This information was reported by the New York Times on Friday (31). If approved, the change would decrease the number of statements, projections, and press conferences that the financial market uses to calibrate expectations about interest rates and the economy.

Warsh took over the Fed about two months ago, promising what he called a "regime change." So far, this expression has generated more speculation than concrete facts. The proposal to alter the frequency of meetings is the first tangible sign of what this change could mean in practice.

Why Meeting Frequency Matters

Each meeting of the Federal Open Market Committee (FOMC) generates an official statement, quarterly economic projections, and, since 2011, a press conference from the chairman. It is during these moments that the market receives the most direct information about how the Fed interprets the inflation, employment, and economic activity landscape.

With eight meetings a year, the average interval between decisions is about six weeks. Reducing this frequency to six or four meetings, for example, would extend this interval to two or three months. In practice, this means that the market would operate for longer periods without updated guidance from the central bank on the direction of interest rates.

For those following global financial markets, the direct consequence is more uncertainty between one decision and another. Fewer meetings mean fewer anchor points for the expectations of investors, fund managers, and analysts who price assets based on the expected trajectory of the U.S. benchmark rate.

The Historical Precedent and Current Context

The frequency of eight annual meetings is not arbitrary. When Volcker established it in 1981, the United States was facing inflation above 10% and interest rates that reached 20%. The predictability of the calendar became a communication tool in itself, reducing the need for surprise interventions and giving the market a regular rhythm to absorb decisions.

In times of crisis, such as at the beginning of the pandemic in 2020 or during the financial collapse of 2008, the Fed called extraordinary meetings, either by phone or in person, to respond to urgent circumstances. These emergency meetings never replaced the regular schedule; they only complemented it.

Warsh's proposal raises a central question: if the number of regular meetings is reduced, could the frequency of extraordinary meetings increase? This would create a paradox, as emergency meetings tend to generate more volatility in the markets than decisions scheduled in advance.

As we have analyzed in previous texts about the impact of American monetary policy on markets, any change in the Fed's communication reverberates across all asset classes, from Treasury bonds to cryptocurrencies.

What This Means for Investors

The most immediate effect of a reduction in meetings would be on the implied volatility of the markets. Today, the FOMC calendar acts as a sort of metronome for global markets. Traders and algorithms adjust positions in the days before and after each decision. With fewer meetings, these adjustments would be more concentrated and potentially more abrupt.

There is also the issue of transparency. Since the 2008 crisis, the Fed has consistently moved towards more communication, not less. Ben Bernanke instituted regular press conferences. Janet Yellen expanded the use of forward guidance. Jerome Powell has maintained this approach. Warsh, by signaling a reduction in the frequency of meetings, would be reversing a trend of nearly two decades.

For Brazilian investors, the impact is indirect but significant. The American interest rate is the global benchmark for risk pricing. Fewer signals from the Fed could increase the dispersion between market expectations and actual decisions, raising risk premiums on emerging market assets.

According to data from CME FedWatch, a tool that measures market bets on American interest rates, uncertainty about upcoming decisions is already high. Fewer points of official communication would make this pricing even more difficult.

The "Regime Change" Goes Beyond Interest Rates

Warsh's proposal needs to be read within a broader context. The term "regime change" may involve changes in how the Fed conducts monetary policy, communicates its decisions, and interacts with the market and political power.

Other central banks operate on different schedules. The European Central Bank, for example, holds six monetary policy meetings per year. The Bank of Japan also holds eight. The Central Bank of Brazil conducts eight Copom meetings annually, following the American standard.

If the Fed reduces to six meetings, it would align itself with the European model. If it goes down to four, it would enter uncharted territory among major central banks. Whatever the final number, the decision will have practical implications for how the global financial market operates.

The proposal has not yet been formalized. Warsh raised the idea internally, and it would need to go through discussion among FOMC members. But the mere fact that the new chairman is considering the change already reveals the direction he intends to take the world's most influential central bank.

Investors should keep a close watch. Fewer meetings do not necessarily mean less action, but they certainly mean less information. And in the markets, information is the most valuable asset.

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