Federal Reserve Chairman Wash makes a major move: appoints former Bank of England Governor King to co-lead newly established communications working group.

Fed Chair Warsh officially launched one of the most iconic reform initiatives since taking office: appointing former Bank of England Governor Mervyn King to co-chair the Fed’s newly established communications working group, bringing a rare external review to the world’s most influential central bank.

King is 78 years old. He served as Governor of the Bank of England from 2003 to 2013 and led the UK central bank through the 2008 to 2009 financial crisis. King confirmed through his office that he would take up the co-chair role of the working group.

On Wednesday, Warsh said at the European Central Bank’s annual central banking forum in Sintra, Portugal, that the list of external experts for the working group is expected to be announced next week, and the candidates will cover experts both inside and outside the United States. He revealed that the candidates include both former officials who previously held similar positions and people from academia, and the team aims to bring together “the best minds in economics.”

This staffing arrangement is the latest implementation of Warsh’s “regime change” commitment since he took charge of the Fed in May, and it is a core step in his push for a comprehensive overhaul of the Fed’s communication approach. The market will closely watch the specific reform recommendations proposed by the working group before the end of the year.

Forward Guidance and the Dot Plot Are the Focus of Warsh’s Reforms

Since taking office in May, Warsh has made clear that he intends to change the way the Fed communicates with investors and the public, including how policymakers signal the outlook for monetary policy. He has not yet committed to holding a press conference after every interest rate decision. Previously, he also suggested that officials reduce the frequency of public speeches.

Warsh is critical of the policy tool known as forward guidance. Forward guidance is a way for central bank officials to signal the path of interest rates. Last month, in the quarterly interest rate forecasts known as the “dot plot,” he refused to submit his own projection. Speaking about the future of the dot plot on Wednesday, Warsh said:

“In the short term, the dot plot will at least still exist. We have already set up a working group for that.”

Notably, Warsh himself has long had a background in research on central bank communications. In 2014, he led an assessment of the Bank of England that helped drive a series of reforms, including those related to communications strategy.

Five Working Groups Proceed in Parallel, with Conclusions Due by Year-End

Last month, Warsh announced the establishment of five working groups, focusing on communications, the balance sheet, the Fed’s “use and reliance” on existing data sources, productivity and employment, and the central bank’s “inflation framework.”

According to the introduction Warsh gave when announcing the working groups in June, each working group is expected to submit conclusions by the end of the year and will carry out its work with external experts supported by internal Fed staff.

In Sintra, Warsh said the purpose of the working groups is not to pre-judge conclusions. “Sometimes we need a foreigner to see the problem clearly. The initial intent of these working groups is not to determine the outcome in advance, and of course I would not do that either.”

Mervyn King Is a Key Figure in Shaping the Bank of England’s Communication Approach

As a senior official at the Bank of England and later its governor for a decade, King is one of the key figures who helped shape the Bank of England’s communication approach. He was among the first to push the central bank away from the traditional “mystery and intrigue” and toward what he referred to in a 2000 speech as transparent communication.

In 1997, after newly elected Chancellor of the Exchequer Gordon Brown granted the Bank of England independence over interest rate decision-making, King built the so-called “Inflation Report”—a quarterly assessment of economic prospects, which is now renamed the “Monetary Policy Report”—as a tool to guide investors in understanding policy.

The original intent behind designing an inflation target regime was to help the public understand central bank decisions, and King was one of the officials actively committed at the time to popularizing policy among the public. He also established the Bank of England’s network of regional agents, serving as the central bank’s “eyes, ears, and voice” across the regions.

However, King deliberately stayed vague on forecasting issues to avoid the trap of “pretending to know the future.” He once said that the only thing economists can predict accurately is that their own predictions will eventually be wrong.

King’s most widely known view in the field of central bank communication comes from his “Maradona rate theory” put forward in a 2005 speech. Using the metaphor of Argentine player Diego Maradona’s near-straight-line dribble past multiple England players to score in the 1986 World Cup, he explained how a central bank can achieve its policy goals by persuading investors to believe its policy intentions.

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