When Kevin Warsh was appointed Chairman of the Federal Reserve, markets expected a decisive break with the Powell era. His speeches promised a new regime, a renewed focus on inflation and a Federal Reserve willing to restore its credibility after several years of persistent price pressures. The rhetoric has certainly changed. The action has not.

Since taking office, Warsh has repeatedly declared that inflation remains the Fed’s primary concern. He has criticised excessive forward guidance, announced task forces to rethink virtually every aspect of the institution, promised a new communication strategy and reaffirmed the central bank’s independence despite constant political pressure from President Trump. Yet the most important monetary instrument remains untouched. Interest rates have not moved. This contrast is becoming increasingly difficult to ignore.

At the June FOMC meeting, the Committee unanimously left the policy rate unchanged at 3.5%-3.75%. Half of the members projected higher rates before year-end, and markets have gradually priced in at least one additional hike. Nevertheless, the Fed itself has done nothing beyond talk about its determination to restore price stability. Warsh’s latest intervention at the ECB Forum in Sintra followed exactly the same pattern.

He argued that inflation risks had moderated in recent weeks, helped by falling energy prices following the easing of tensions in the Middle East. At the same time, he reaffirmed that bringing inflation back to 2% remained the Fed’s absolute priority. He reiterated that the Federal Reserve would maintain price stability and again refused to provide any forward guidance. The message was familiar: strong words, no commitment.

Ironically, the man who criticised the previous Fed for relying too heavily on communication risks becoming the chairman who governs almost exclusively through communication. Markets have welcomed his tone. Treasury yields initially fell after his remarks, suggesting investors interpreted his comments as slightly less hawkish than expected. Yet inflation remains well above target. Core PCE remains above 3%, the labour market remains resilient, consumer spending continues to surprise on the upside, and the AI investment boom is supporting economic activity. None of these indicators points towards an economy requiring imminent monetary easing. Nor do they fully justify continued inaction if inflation is indeed the overriding concern.

The political backdrop inevitably complicates the picture. Warsh insists that the Federal Reserve remains fully independent. Publicly, there is little evidence to challenge that statement. However, it is equally difficult to ignore that he owes his appointment to Donald Trump, whose repeated criticism of Jerome Powell centred on the Fed’s reluctance to cut interest rates. Trump wanted a more accommodative central bank. Instead, he appointed a chairman who speaks like a hawk but, so far, behaves like a pragmatist. Perhaps that is precisely the objective. Warsh may be trying to rebuild the Fed’s credibility without triggering unnecessary financial tightening. Monetary policy often works through expectations, and convincing markets that the central bank is prepared to act can sometimes achieve part of the desired effect without actually moving rates.

But there is a limit to how long words alone remain credible. Central bank credibility ultimately rests on action, not speeches. Markets will eventually judge the Fed not by the number of task forces it creates, nor by the frequency of its communication, but by whether it is willing to take politically difficult decisions when required. There is also another possibility. Warsh may simply be buying time. Recent declines in oil prices could ease headline inflation over the coming months, allowing him to argue that patience was justified. If inflation moderates naturally, the Fed can claim success without tightening further. If it does not, the cost of delaying action may ultimately prove much higher. For now, the Federal Reserve appears caught between two narratives. Its chairman speaks like an inflation hawk. Its policy still looks remarkably cautious. Markets are listening carefully. Sooner or later, they will expect more than words.