FX.co ★ Kevin Warsh decides to assemble FOMC less often so as not to spook Wall Street

Federal Reserve Chairman Kevin Warsh is considering cutting the number of scheduled meetings of the Federal Open Market Committee (FOMC). The rate-setting committee currently gathers eight times a year, but the new chairman intends to rethink the central bank’s role and minimize the impact of its statements on asset prices.

By law, the FOMC is required to hold at least four meetings a year. At spring hearings in the Senate, Kevin Warsh made it clear that four meetings are not enough for the regulator, but eight are excessive. Analysts at investment bank Barclays suggest that a new optimal number could be six meetings a year. The current eight-meeting schedule has been in place since 1980, when Paul Volcker cut the number from ten as part of a major structural reform. Kevin Warsh is not expected to unilaterally upend the established system and will wait for official consensus within the committee. For this reason, any changes are unlikely to take effect before next year.

Revising the Federal Reserve’s schedule has an obvious goal: to wean Wall Street off total dependence on monetary signals and force markets to rely more on hard macroeconomic data. However, Barclays experts warn of grave side risks to this strategy. Less frequent meetings would deprive the institution of operational flexibility, and each remaining meeting would acquire an exaggerated significance. Ironically, the Fed’s attempt to “step back” could produce the opposite effect, concentrating all uncertainty into a few dates and making markets even more sensitive to the central bank’s decisions.