The David Lin Report · Tuesday, September 1, 2026
Kevin Warsh criticized the Federal Reserve's past use of forward guidance, suggesting it may have delayed policy responses to high inflation in 2021 and created a 'hall of mirrors' effect where markets and the Fed rely too heavily on each other. He argued that in normal times, forward guidance should be limited to avoid ambiguity and over-committing future decisions.
“But as with other legacies of crises past, I believe the practice has outstayed its welcome. In normal times, the role of forward guidance should be limited and circumscribed. Otherwise, it risks trading ambiguity in the name of clarity. Over sharing policy deliberations and over committing to future decisions can leave markets, businesses, and households astray.”
“I am not alone in noticing that forward guidance in 2021, to cite just one example, might well have slowed the policy response to high inflation.”
“In my view, the Fed should be humbled and never naive. The Fed plays an essential role in the economy and markets. Our tools are powerful. We determine the path of short-term interest rates. And market participants will always try to anticipate what we will do next. But we should not indulge a regime where market participants are looking primarily to the Fed for their next trade. The economic literature has long described the distorting effects, what it called the hall of mirrors problem.”