The Washington Congress debut is imminent, Wall Street shouts: you may not give a path to interest rates, but please clarify your views on the economy.

Since taking office as the Federal Reserve Chair, Kevin Warsh has been extremely careful in avoiding sending signals about interest rate trends, but in doing so, he has obscured another crucial piece of information for investors, analysts, and other decision-makers - how he will respond to economic challenges. Warsh will attend Congressional hearings on Tuesday and Wednesday, where Fed watchers will closely monitor his views on inflation, labor market, and economic growth, as well as how these factors interact with interest rates. But if his recent public appearances are any indication, these observers may still come away empty-handed. Warsh has promised to abandon the so-called "forward guidance" of central banks - that is, signals about the path of interest rates. During his first press conference on June 17, he avoided answering several related questions. For example, when asked how much patience decision-makers would have in waiting for inflation to fall, he responded, "Your question sounds like encouraging me to give forward guidance." This has led to continued frustration outside the Fed, with one of Warsh's weighty colleagues already speaking out publicly about it. Fed Governor Christopher Waller, in a speech in Rome last week, deliberately distinguished between "providing forward guidance" and "interpreting how the central bank might respond to different economic circumstances." He pointed out that the latter helps reduce uncertainty faced by markets and households, "making everyone's days a little better." "Reaction function" In addition to "forward guidance," another frequently used term is "reaction function" - Waller and several other economists have used this expression. This somewhat obscure term is at the heart of current discussions. Economists emphasize that clarifying the difference between these two concepts is crucial. As economist Andrew Sack explains, "Forward guidance tells the market where the central bank thinks it is going; and the reaction function tells the market how the central bank will respond to unexpected situations without revealing the expected path." Many people, including Waller, have pointed out that Warsh has a valid argument: too much forward guidance can make decision-makers passive, as it creates an impression that they have already committed to future interest rate decisions. However, if he fails to clarify his reaction function, he may also bring significant risks. The pricing of financial markets - especially key benchmarks such as 10-year U.S. Treasury bonds or secured overnight financing rates - partly depends on investors' expectations of the central bank's future actions. If the market understands the central bank's logic thoroughly, participants can incorporate their own economic forecasts to make reasonable judgments about the path of interest rates. This, in turn, helps avoid market volatility when predicting roughly accurately and even shortens the time needed for interest rate changes to trickle down to the real economy. "Good communication conveys the Fed's reaction function, that is, the relationship between economic conditions and the policy interest rate path. This is the true core," said Richard Berner, a professor at New York University who worked for the Fed research team in the 1970s. This is different from forward guidance." A Fed spokesperson declined to comment on this. Relinquishing Leadership Facing criticism from the outside for his lack of clear communication, Warsh refuted these claims when he appeared with other central bank governors in Portugal on July 1, using the bond market as an example. "The volatility has not increased, but rather decreased," he said. "People keep saying that no one understands the policy, but in my view, the market actually understands it very well." However, this statement has not been widely accepted. Michael Feroli, chief U.S. economist at JPMorgan Chase, said that if Warsh continues to remain silent, he may hand over the leadership of Fed communication to other policymakers. "He has not yet shown any control over the current economic situation," Feroli said. "We can only turn to other Fed officials to understand their interpretation of the economy." Warsh's strategy is not only reflected in his public statements. When policymakers submitted quarterly economic forecasts and interest rate expectations (the so-called "dot plot") in June, he refused to participate. The subsequent statement was noticeably shorter, and the minutes of the meeting released three weeks later were also more concise than before. However, the minutes of the June interest rate meeting showed that Warsh received support for shortening the post-meeting statement, with some participants welcoming a review of his communication style. Other officials have recently mentioned that given the increased economic uncertainty, it is necessary to reduce forward guidance for investors. But if this strategy blurs the framework for understanding and responding to economic conditions at the Fed, this support may gradually erode. Waller said in Rome that maintaining a clear understanding of the reaction function is one of the "key experiences" summed up by central banks over the past thirty years. Lessons from the Past Lou Crandall, Chief Economist at Wright Investors' Service, entered the field in the 1980s and remembers when the Fed didn't even disclose interest rate decisions. "It was a mess," he said. Then-Chairman Alan Greenspan - whom Warsh mentioned at his inauguration - gradually increased communication with the markets. However, he always maintained enough ambiguity, to the point where investors could only speculate based on the most subtle clues - such as the size of Greenspan's briefcase when he attended policy meetings. "A lot of people in the market are eager to interpret the Fed's thoughts from their own perspective. When the Fed doesn't try to clarify its views - not with certainty, but with some clarity - this kind of speculation can run rampant," Crandall said. Former Fed Vice Chairman Don Kohn believes that it is not inappropriate for a new chairman to take time to clarify his own thinking, but he expects Warsh to eventually open up. "At some point, he will have to offer a more detailed economic perspective, clarify his views, and how they align with the committee," Kohn said. "I don't think this situation will continue forever."