The last time the Federal Reserve conducted a comprehensive review of its monetary policy framework, Jerome Powell was running a central bank that had spent years undershooting its own inflation target. That was 2019. The review that followed produced a strategy update in 2020, and then inflation arrived anyway, blew past the 2% target, and stayed there for the better part of five years.
Now it is Kevin Warsh’s turn, and he is not starting small.
Warsh, who took over as Fed chairman in early 2026, used his keynote address at the Jackson Hole Economic Policy Symposium on August 28 to announce a sweeping internal review of the central bank’s operations, models, and analytical foundations. He framed it as a reckoning with institutional shortcomings that allowed inflation to run hot for far longer than the Fed’s own forecasts ever predicted.
Five task forces, one mandate
The review is structured around five dedicated working groups, each assigned a distinct slice of the Fed’s operational machinery. The task forces will examine the inflation framework itself, the quality and sourcing of economic data, how the Fed measures productivity and employment, its communications strategy, and balance sheet policy.
The scope of this reassessment makes it the most significant examination of Fed policy since the central bank formally adopted its 2% inflation target in 2012.
PCE inflation, the Fed’s preferred gauge, is running at 3.7% on an annualized basis and 4.1% on a semi-annual basis. Neither number is anywhere near 2%.
The data problem hiding in plain sight
One of the more pointed critiques embedded in Warsh’s announcement concerns the quality of the raw material the Fed uses to build its models. Survey-based data, long a staple of economic analysis, has been degraded by declining response rates over time. When response rates fall, survey data becomes less representative, and models built on that data become less reliable. The task force focused on data is expected to examine whether alternative data sources, including higher-frequency and more granular inputs, can replace or supplement the existing architecture.
Warsh also signaled a deliberate retreat from heavy reliance on forward guidance, the practice of telling markets in advance where rates are likely headed.
Credibility as the subtext
Five years of above-target inflation has eroded institutional credibility in measurable ways. Warsh’s review is an attempt to rebuild the analytical scaffolding that would make future commitments more credible.
He was explicit that the 2% target is not on the table for revision. Whatever else the task forces recommend, the nominal anchor stays where it is.
For investors, the practical implication is that the Fed’s reaction function, meaning the relationship between incoming data and policy decisions, is explicitly under reconstruction. A central bank that has said it will be more data-dependent and less forward-guidance-reliant is a central bank that will be harder to predict on any given meeting date.