Bloomberg Surveillance · Wednesday, July 29, 2026
Analysts are drawing parallels between Fed Chair Kevin Warsh's approach to monetary policy and Robert Lucas's critique of economic models. Warsh's emphasis on reacting to real-time data and reduced forward guidance suggests a move away from traditional modeling, which could lead to increased market unpredictability.
“There was a bombshell in there where he went back to twenty fourteen and a paper he did on the Lucas critique. It's just slipped in there for a second, but to academic economists that is a bombshell. What he said, and what he's basically saying is the distrust that Robert Lucas, the laureate had of models. Are we you know, I think I Claudia, Sam Lisa, you mentioned this earlier, the idea of reaction functions. Is this a new almost model free federal reserve away to Lucas and even away from the giant Olivia Blanchard.”
“It does lean into the Chicago stand for a school of thinking Nami that when you have a policy that you're changing, you should not run regressions and look historically at the data up to where we are now, because the change in the policy is going to change how people say a new model.”
“That's why if you don't have the models that look at the latest data, then what are you then looking at? What are you then relying on for forecasting what inflation will do going forward? So in other ways, if I'm not allowed to look backwards and say this is where the data is coming from, and the trend is whatever, this or that, well, then what am I then. Using as the guidepost?”