Today's Fed Meeting: Is New Chair Kevin Warsh Cooking Up a Surprise?

Welcome to the Kevin Warsh Show.

It’s America’s newest “reality TV” series. It stars new U.S. Federal Reserve Chair Kevin D. Warsh. And, as we know from the “central-bank serials” that preceded it, Warsh will air for years to come …

It should also deliver some pretty juicy storylines. For instance:

• Will America’s moribund housing market ever rebound?

• Will inflation’s resurgence supercharge the country’s affordability crisis — further grinding away at the U.S. middle class?

• Will Washington’s addiction to debt continue unchecked — igniting all the maladies we know will follow?

• And can Warsh (somehow) pull off the “high-wire act” between a White House that’s demanding low interest rates and an economy that could probably use a high-rate injection?

This “high drama” could begin to play out today (Wednesday) when Fed policymakers meet to talk about economic growth, the jobs outlook, affordability, resurgent inflation and market interest rates.

U.S. President Donald Trump has made clear his wish for perpetually-low interest rates — a growing necessity at a time when the national debt is up near $40 trillion, public debt nears $32 trillion and interest payments are nearing $1 trillion a year.

But, in testimony to Congress, Warsh insists that he’s his own man: Indeed, he said he won’t be a “sock puppet” to President Trump.

Most analysts expect Fed policymakers to stand pat — neither raising nor lowering the Fed Funds rate, currently in a target range of 3.5% to 3.75%. (The CME Group FedWatch tool has handicapped that scenario at 70.6%.)

But the uncertainty about what will happen this close to a Federal Open Market Committee (FOMC) meeting hasn’t been this high in recent memory. CME FedWatch places the probability of a quarter-point rate increase at 29.4% — down from a reported 38% just a few days ago.

Conversely, Citadel Securities Macro Strategy Chief Frank Flight is more certain of that quarter-point rate hike — a surprise switch from his “base-case” prediction for the Fed to stand pat.

It’s a move he believes would build credibility for Team Warsh. Flight said it would “emphatically end the forward-guidance era” — while sending a concrete message of central-bank independence.

Back to the Beginning

I get what Flight is saying.

For years — going back to the early 2000s, when I was still working as a business reporter — the policymaking FOMC started using “statement language” to tell investors a rate increase was coming. This became standard operating procedure (SOP) during the Great Financial Crisis, when the markets were so fragile that the slightest negative surprise might tip them over. Even after the crisis calmed down, the Fed continued to take great care — finally telling investors that the brittle economy would demand exceptionally low rates “for some time.”

After that, the Fed’s handholding grew in both care and detail. By 2009, that “for an extended period” morphed into “at least through mid-2013.” Then the FOMC said “through late 2014” and then [through] “mid-2015.”

Fast-forward to 2020, the COVID-19 Pandemic and the fastest bear market in history: The S&P 500 experienced a peak-to-trough savaging of 33.9% — in 33 calendar days.

In such a compressed time frame, guidance became more important than ever. Forward guidance was again used heavily as rates returned to near zero.

It’s this specific practice that Warsh wants to end.

It’s already started.

In his June 17 press conference, Warsh said the Fed had dispensed with “so-called forward guidance” – which the FOMC says “is not well-suited to the current policy conjuncture.” He believes central-bank policymaking should be determined on a meeting-by-meeting basis — with the latest-available data. But that means the Fed can’t be looking down the road to telegraph what it’s thinking — or what it intends to do — next quarter, next month or next year.

As I know from my 42 years as a financial reporter, author, columnist and stock picker, there are interesting parallels between the Fed’s “guidance journey” and how public companies operate.

Addicted to Guidance

The Holiday Inn hotel chain long used this terrific slogan in its marketing campaigns: “The best surprise is no surprise.”

As slogans go, this one is great. It’s memorable. And it’s absolutely the message travelers wanted to hear.

Folks who invest in public companies are of two minds when it comes to “surprises” ... and earnings.

And they respond — in emotional, knee-jerk fashion — to each one.

They love “upside surprises,” when sales and profits come in ahead of forecasts — and often pile in, which shoots the stock skyward.

But they absolutely hate “downside surprises,” when companies stun them with shortfalls — and often pummel a stock by pulling the ripcord and selling en masse.

That’s why “forward guidance” became ingrained in the Great World of Wall Street. And, during a reporting career that lasted from 1984 to 2005, I watched forward guidance take hold — until it became “expected.”

Some public companies issued forecasts back in the 1980s — or even before — consultant McKinsey & Co. found in a study. Of the companies it surveyed, McKinsey said only 92 used forward guidance as a tool back in 1994.

The battleground changed the next year: The Private Securities Litigation Reform Act of 1995 made it easier for companies to talk about future earnings, operating trends or business conditions — without the fear of getting sued. Companies that wanted to tell investors that sales or profits or growth would differ from what everyone was expecting could now enjoy a “safe-harbor protection” — as long as they acted in good faith.

If you think about it, that was good for everyone.

“It’s a form of legal risk management, voluntary, but treated by courts and regulators as a sign of integrity,” explains George Law, a civil-and-criminal firm operating in Michigan and Florida. “When a company pairs forward-looking optimism with transparent caution, it communicates that it’s not hiding risk; it’s acknowledging it.”

The use of forward guidance exploded. Of the companies McKinsey surveyed, the number went from 92 in ’94 to 1,200 in 2001. By 2003, fully 75% of U.S. public companies did this routinely — making it (as one expert said) a “ritual of American Capitalism.”

I covered big public companies like Eastman Kodak Co. (KODK), Xerox Corp. (XRX), Bausch & Lomb Inc., Harsco Corp., York International Inc., Black & Decker, Bethlehem Steel, Westinghouse Electric and more.

An earnings report went from “sales and earnings” to “sales, earnings and forward guidance.” And that guidance greatly influenced stock prices — which makes sense, given that “sales and earnings” are rear-view-mirror history … while “forward guidance” is the what-comes-next fodder that plays to the power of the stock market (as a gigantic “discounting mechanism”).

I saw it over and over: A company would beat estimates on sales and profits — but its stock would get hammered because the guidance was disappointing. Or, conversely, a company would offer an “upside surprise” on guidance – and would then see its shares skyrocket.

As we moved into the 2010s, CEOs (and some big institutions) began arguing against these forecasts, contending quarterly guidance (and, indeed, quarterly earnings reports) had negative fallout. In terms of how companies were managed, earnings guidance fostered:

• Short-term thinking in terms of how businesses were run.

• So-called “earnings management.”

• And an-almost-obsessive focus on “meeting the number” — instead of on creating long-term value.

I can tell you: There is truth in all three of those points. In my new ebook, Wealth Builder/Wealth Killer: Keep Your Cool and Win in a Stock Market Meant to Break You, I share all about the sophisticated games public companies play with their earnings reports – and I show you how to spot them.

That exhausting scrutiny – always operating under the microscope/in the blazing spotlight — is one reason more companies are staying private longer than ever. That, in turn, has helped foster The Private-Equity Tidal Wave — one of the key storylines we’re following here at Stock Picker’s Corner. Startups and fast-growing unicorns are more receptive than ever to private financing.

(Back during my days as a business reporter, I remember an exhausted and exasperated CEO of a very big company — call it a “Fortune 50” firm — telling me he’d never again run a public company … but that he’d gladly run a private firm.)

One survey I found said that, by 2017, only 27% of U.S. firms still issued quarterly guidance — a number I find stunningly low (meaning I question the study’s accuracy). According to FactSet Earnings Insight, about 22% (roughly 111) of S&P 500 companies issue explicit quarterly earnings guidance here in 2026.

That means the real percentage is higher: Other companies still issue annual guidance; or they share “qualitative commentary” — a narrative that serves the same emotion-tamping purpose, just not in numerical form.

What to Watch: What’s Next

In early May, U.S. Securities and Exchange Commission Chair Paul Atkins proposed an end to the quarterly reporting requirement for public companies.

Companies could still report quarterly if they wished — but would only be required to file twice a year. When the public comment period opened, investors went absolutely bat… (well, they went nuts). It doesn’t matter: Both Forbes and The Wall Street Journal say the Trump Administration is intent on having this become law.

It’s a bad idea: It gives companies six additional months a year to rationalize problems, hide numbers and only come clean when forced to. And since investors are emotional creatures, by nature, these “surprises” will be bigger in magnitude and greater in number (meaning more problems across more companies). So we’ll end up with a market that’s far less orderly, far more reactionary — and much more volatile (against a backdrop that was becoming ever-more volatile anyway).

The U.S. stock market isn’t perfect. But it’s got more credibility than its overseas peers (and rivals). And a move like this erodes its transparency, which (in turn) erodes its trust.

Which brings us back to the Fed — and Warsh — and the intriguing “Good News/Bad News” parallels there.

So what happens if a key Season One plotline for the Kevin Warsh Show is an end to the Fed’s “forward guidance” blueprint?

If Episode One this afternoon also includes a surprise rate hike, that’s a “good news” storyline that imbues Warsh with a strong persona: It’ll make investors believe Warsh is an independent Fed chief — and not a “sock puppet” lackey of U.S. President Donald Trump, who wants (and needs) perpetually low interest rates to keep stocks a-rockin’ … and to inflate away that debt, even as Washington keeps borrowing.

And that rate increase wouldn’t be just for appearances: As we learned during the run of the Paul Volcker Show decades before, the time to tame inflation is before it gets traction; once prices are off to the races, any true solution is accompanied by deep, economywide pain.

But the end of Fed guidance has a dark side, too: The U.S. financial system endured two historic crises in a generation — and did so (in part) because of a Fed that operated in steps, by managing expectations and working methodically.

Knowing that investors (big and small) are emotional animals who react in knee-jerk fashion, will a central bank that no longer operates as much in the open lead to more volatile responses in the stock, bond, currency and derivatives markets? In the economy?

That, too, is worth watching.

And it’ll take a special kind of investor — a Wealth Builder like you and me — to avoid the reactive, Wealth Killer traps most investors succumb to.

In the meantime, remember the SPC basics:

• Be a Wealth Builder, not a Wealth Killers.

• Find the best storylines to find the best stocks.

• Focus on “Money Doublers.”

• Accumulate those stocks on pullbacks — or through consistently timed investments.

• Invest … don’t trade.

• Play the long game — look to hold those stocks for three, five, seven years — or longer.

• Augment those stock holdings with “Real Income” investments — viewing them as “cash flow” where money’s going into your pocket … even after you account for inflation, real market rates and taxes.

• And counter the inflation and affordability challenges bottled up in the American economy with holdings in silver, gold and other critical-mineral hard assets.