SINTRA, Portugal — Markets spent two hours on Wednesday waiting for Kevin Warsh to say something useful about July. He did not oblige them. What he gave instead was something more consequential for the medium term: a clear statement that the Federal Reserve, under his leadership, will no longer tell the world what it plans to do before it does it.
Warsh stepped onto the international stage for the first time as Fed Chair at the European Central Bank’s annual forum in Sintra, Portugal, joining a panel with ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem. He has held the position since May. The forum gave the financial world its first extended look at how he operates alongside his peers, and the answer, at least on Wednesday, was: carefully.
On the July rate decision, Warsh offered nothing. He declined to hint at whether the Federal Open Market Committee will raise, hold, or cut at its meeting later this month, while affirming only that inflation remains too high. “We’ve all looked around, and we’ve seen that prices are too high,” Warsh said — a statement precise enough to be true and vague enough to commit to nothing. CNBC reported that the Fed Chair explicitly declined to signal the July outcome when asked directly. The market interpreted the silence as consistent with a hold, though the probability distribution in Fed funds futures remained wide.
The more durable signal from Sintra was the panel’s collective position on forward guidance. Lagarde, opening the exchange, said she had come to regret feeling “bound and compelled by forward guidance” during her tenure at the ECB — an admission that the practice of pre-announcing rate paths had, in her view, constrained the bank’s ability to respond to changed circumstances. Bailey said the same thing in different language. Macklem nodded the Bank of Canada into agreement. Warsh, given the opening, closed it: “We have found common cause.” Four of the world’s five most systemically important central banks have now, in the span of a single Sintra panel, effectively agreed that the era of explicit forward guidance is over.
This matters beyond the words themselves. Forward guidance — the practice of signaling future rate paths to anchor market expectations — was the dominant monetary policy communication tool for much of the post-2008 period. The Federal Reserve, ECB, and Bank of England all used versions of it, with varying success, to guide long-end rates lower and stimulate investment without moving the policy rate. The problem, which Lagarde articulated and all four panelists implicitly endorsed, is that it works until it doesn’t: once a central bank’s credibility is tied to a stated path, abandoning that path — as every central bank had to do in 2021-22 when inflation arrived faster than their forecasts — destroys both the guidance and the credibility simultaneously. The lesson of Sintra 2026 is that the lesson was learned.
Warsh’s own contribution to the session extended beyond the forward guidance discussion. He described the Fed’s current internal focus as reforming its “reaction function” — the framework it uses to decide when and how much to move rates in response to incoming data. His argument, consistent with positions he has held since before taking the chair, is that the Fed has spent too much time constructing forecasts and too little time establishing clear, communicable rules for how it will respond when those forecasts are wrong. What that means in practice for the July meeting — when the FOMC will have the June employment report and the June CPI reading in hand — Warsh did not say.
The inflation backdrop facing all four Sintra panelists has become somewhat easier since they last met formally. Euro area inflation fell to 2.8 percent in June, driven by retreating energy prices, a reading that reduces the pressure on the ECB to hike at its July 24 meeting. The Bank of England is navigating a similar energy-driven deceleration. In the United States, tariff-driven goods inflation has continued to run above the Fed’s 2 percent target even as services inflation has shown partial moderation. Warsh’s statement that “prices are too high” reflected that reality without resolving it.
The panel’s discussion of artificial intelligence was the third major thread. All four governors expressed what Warsh described as “open-mindedness” on AI’s potential to drive productivity gains that could, over time, be disinflationary. The ECB and Bank of England have both flagged AI-related productivity effects in recent staff projections. Warsh was careful not to incorporate any AI productivity assumption into a near-term rate view, acknowledging the uncertainty around timing and distribution of those gains. Whether AI becomes a reason for central banks to hold rates steady while watching productivity materialize, or a rationale for cutting rates preemptively on the expectation that it will, was left unresolved — as it was likely always going to be at Sintra.
What the market learned from Warsh’s Sintra debut is primarily structural. He will not telegraph rate decisions. He will not construct a forecast and bind the Fed to it publicly. He will reform the institution’s communication model around a reaction function that responds to data rather than predicting it. None of that tells a trader what the Fed will do on July 30. It tells them how to think about a Fed that, under Warsh, will be harder to front-run and more likely to surprise. That is a different kind of signal, and it arrived clearly enough.
