Kevin Warsh Faces Challenges in First Meeting as Fed Chairman

As Kevin Warsh leads his first policy meeting as Federal Reserve chairman this week, he is not getting the luxury of starting the job in "easy" mode.The big picture: He faces a renewed surge of inflation, a restive wing of monetary hawks on the policy committee and big questions around how he will operationalize the major changes he advocates in how the Fed works.Even if the policy outcome — no change to rates — looks preordained, the messaging would be tricky in any circumstance.Coming as the first substantive public communications as Fed chairman adds to the possibility for confusion, as Warsh finds his sea legs in the press conference format and markets learn how to interpret his words.State of play: Even putting aside the effects of the Iran war on energy prices, core inflation has been surging so far this year. That puts in doubt the interest rate cuts that Fed officials penciled in to their last projections, released in March — and has some officials (and market-based forecasts) looking to raise rates.Warsh's stated policy views would seem to pull him in opposite directions.He has historically been a monetary hawk, and said in his confirmation hearing that "inflation is a choice, and the Fed must take responsibility for it" and do so "without excuse or equivocation, argument or anguish."He has also argued that the AI boom and supply-side policies of the Trump administration will enable non-inflationary growth, making an intellectual case for the rate cuts desired by the president who appointed him.Zoom out: The questions Warsh faced at his April confirmation hearing didn't really zero in on the near-term policy direction, and the economic backdrop has shifted since then anyway.So this will be his first opportunity to guide financial markets on which of those concepts prevail in his thinking.Zoom in: Warsh will surely face questions about the quarterly economic and policy projections from participants on the policy committee — a practice that he himself has sharply criticized, arguing that it makes officials too reluctant to pivot policy based on incoming evidence.It will be unsurprising if he plays down the importance of those projections even more than his predecessor, Jerome Powell, did.Still, Fed watchers the world over won't be able to help but scrutinize the "dot plot" to see how many officials now anticipate raising rates this year and how many continue envisioning rate cuts.Between the lines: One option the committee has in reshaping its statement is to eliminate language implying that the next policy move will be a rate cut, without replacing it with language pointing to a rate increase.That may satisfy the three hawkish dissenters who objected to that language six weeks ago while also aligning with Warsh's stated desire to get the Fed out of the business of giving detailed forward guidance.What they're saying: "We expect the press conference to be pivotal," UBS economists led by Jonathan Pingle wrote in a note."We do not really kno