On Thursday morning in Istanbul, Christopher Waller offered a glimpse of how the Federal Reserve might have communicated if he had been tapped for chair instead of Kevin Warsh.

Waller, a Fed governor who was among the finalists for top central banker, indirectly but categorically eschewed Warsh’s aversion to forward guidance and his opaque communications style.

In a speech at the Istanbul Economic Forum titled “The Signaling Value of the Summary of Economic Projections,” Waller defended the benefits of the forward-looking SEP and the Fed’s so-called “dot plot,” which Warsh has refused to participate in since assuming the chair role in May.

Waller proposed an alternate form of Fed communications that “has the flavor of forward guidance but isn’t forward guidance.” Specifically, he suggested implementing a “signaling option,” whereby the Fed could indicate that the policy rate will likely be adjusted — but would leave open the pace and degree of individual adjustments.

“This approach provides some information regarding what the terminal rate will be after hiking but allows the pace and the size of rate hikes to be data dependent,” Waller said, according to prepared remarks. “Simply put, policymakers could signal where they are likely headed while acknowledging that there is no fixed final destination — except for the achievement of price stability and maximum employment.”

Warsh has taken a much different approach. Besides not submitting dots to the quarterly plot of the anticipated interest rate path, the new Fed chair said in July that it was a “change for the better” that fixed-income traders are “learning to play the ball, not the referee,” referring to markets prioritizing incoming data over Fed guidance.

Waller cautioned Thursday that saying nothing about the expected path of the benchmark federal funds rate “could surprise markets and create volatility.”

“The point is that if too few or too many hikes are priced in, the change in financial conditions would mean too little or too much of an effect on economic activity,” he added.

October signals

In September, when the Fed raised interest rates by a quarter of a percentage point, 16 of the 18 Federal Open Market Committee members who submitted projections to the SEP predicted at least one more rate hike in 2026. Four expected rate increases at both the October and December meetings.

During the three weeks since the rate decision, softer-than-expected inflation data and a lackluster jobs report have lowered the market-implied odds of an October rate hike to just 17% as of Thursday afternoon, according to CME FedWatch. But that trading tool shows 81% odds of at least 25 basis points of tightening by December.

“If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal,” Waller said at the conference in Turkey. “But there is some flexibility about when those hikes will occur. The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time.”

Translation: More rate hikes are likely coming, but don’t bank on it in October.