This week, the Treasury Department, under Secretary Scott Bessent, announced it would at least double the size of its long-end buyback operations, lifting the ceiling from $2 billion to at least $4 billion per operation. This decision was in response to a further climb in the 30-year yield to its highest level since 2007. Yields initially dipped on the news—as the Treasury would have hoped—but then markets erased nearly the entire drop within a day.

To run a buyback, the Treasury purchases longer-dated Treasury bonds and funds the purchases by issuing short-term Treasury bills, swapping long-term government debt for short-term government debt, and removing the long-term bonds from private hands. 

As the Federal Open Market Committee meets this week, the more telling story may be Chairman Kevin Warsh’s approach rather than the FOMC’s rate target decision. If his first meeting is any guide, he will say as little as possible; he has already declined to provide his own rate projections for the dot plot and significantly curtailed forward guidance. That restraint is deliberate, and it previews a far larger project. Warsh has launched five task forces to review how the Fed communicates, manages its balance sheet, uses data, understands productivity, and fights inflation.

Conducting a thorough review of monetary policy was the first recommendation we made when Warsh took office. The Fed adopted its flexible average inflation targeting regime in 2020, promised to let inflation run hot to make up for past shortfalls, and then presided over the worst inflation in four decades while calling it transitory. When the Fed ran its scheduled framework review in 2025, it revisited the wording of its consensus statement and little else. The five task forces are, in effect, the review that should have happened last year.

A new Cato briefing paper, released today, summarizes the best possible outcomes from this review. It works through each task force in turn, identifying the underlying problem and the reform that best addresses it. The recommendations differ in their particulars, but nearly all of them point in the same direction: The Fed serves the public best when it does less, not more. A well-functioning central bank commits to clear rules, holds a smaller footprint in financial markets, and leaves more room for prices and private information to do their work.

Communications is the cleanest illustration, and this week puts it on display. After 2008, the Fed came to rely on forward guidance, telling markets in advance what to expect and building an elaborate signaling apparatus around it. The goal was predictability, yet the result was often the opposite. Markets and incoming data usually offer a better real-time read of the economy than the Fed’s own forecasts, and guidance can drown out those signals. In September 2025, the data pointed to holding the rate target steady or even hiking, but the Fed had so firmly telegraphed a cut that reversing would have shocked markets—so it cut anyway, despite prevailing data.

Warsh’s instinct to say less is therefore a step in the right direction. If this meeting follows the pattern of his first—a shorter statement, little forward guidance, few clues about the path—that restraint is welcome. But restraint alone is fragile; it lasts only as long as the chairman who practices it. The durable fix is to replace discretionary communication with a rule. The Fed should publish its reaction function—a transparent formula linking its rate decisions to observable conditions—and let that stand as its communication. Predictability would then come from the rule itself, not from parsing a chairman’s silence, and forward guidance in its current form would become unnecessary.

The same logic runs through the rest of the paper. A balance sheet that ballooned past comfortable limits should be shrunk and simplified. A central bank that leans on slow, heavily revised government data should make room for faster private sources. A framework that bases policy on speculative productivity forecasts should instead rest on a rule. In each case, the reform narrows the Fed’s discretion and widens the space for markets and rules to operate.

None of this assumes the Fed can deliver perfect outcomes. It cannot. But a Fed that is more predictable, more accountable, and less intrusive than the one we have is a welcome step in the right direction.

Every few weeks, fresh speculation emerges about when the Federal Reserve will change its interest rate target, followed by confident claims that this decision will drastically alter the mortgage, auto, or credit card rates that weigh on American households. The assumption beneath the coverage is that the Fed sets the cost of borrowing, so its next move matters more than anything else. People don’t want to hear that the Fed matters less than “everyone” thinks, but at the very least, the past seven months are enough to question exactly how much the Fed controls rates.

The Fed has held its rate target steady since its December cut. But as this table shows, nearly every rate Americans actually borrow at has climbed over the same stretch.

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New Fed Chairman Kevin Warsh testified before the House Financial Services Committee and the Senate Banking Committee last week, delivering the Fed’s semiannual Monetary Policy Report. Both sessions covered important topics: a favorable June inflation report that Warsh declined to treat as “mission accomplished,” the Fed’s retreat from forward guidance, and pointed exchanges over the Fed’s independence from the White House. But an outsized share of the questioning, especially in the Senate, went to artificial intelligence (AI), leaving some key questions about the state of monetary policy unasked.

Obviously, the Fed has no direct control over how AI evolves. But senators pressed Warsh on whether the AI investment boom is inflationary and on the financial-stability risks posed by the newest AI models. His answer was that AI-driven price increases need not be inflationary, because supply should eventually catch up, and he described the internal Fed debate over AI spending as “one of the good family fights.”

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After years of fighting back against the rise of central bank digital currencies (CBDCs), I’m happy to share that the United States is the first country to prohibit its central bank from creating a CBDC. 

The ban was passed as part of the 21st Century ROAD to Housing Act. As the name suggests, the legislative package is primarily about housing policy—something my colleagues have written about at length. It’s only at the very end that Congress included a prohibition on the creation of both a retail and intermediated CBDC. 

Given the risks of CBDCs, this passage marks a great win for financial freedom. 

At the same time, however, this battle is not over. Unfortunately, Congress decided to have the ban expire at the end of 2030. This decision makes little sense. President Donald Trump already issued an executive order to ban the creation of a CBDC during his presidency. Once a new administration takes office and 2031 rolls around, these protections will disappear, and the door will reopen.

So celebrate today’s win, but don’t mistake it for the end of the story. The fight against the rise of CBDCs is not over yet.

Former Federal Reserve Chair Alan Greenspan died this week at 100 years old. He was a towering figure in macroeconomics, having presided over much of the Great Moderation—arguably the longest period of low, stable inflation and unemployment in US economic history. At the heart of his monetary policy decision-making was a curious contradiction. Despite positioning himself as a staunch supporter of discretion, the FOMC under his leadership was remarkably rule-abiding, something the present Fed can and should learn from.

Greenspan made a forceful case for discretionary monetary policy. In a 1997 address at Stanford, with Milton Friedman in the audience, he argued that the economy changes too rapidly for any mechanical rule to keep pace, so some measure of discretion is unavoidable. Many believed that Greenspan was managing the economy by feel and that he used his financial savvy to calm markets during turmoil. This led to his being dubbed a “maestro” of economic management. Sadly, this notion of his vibes-based economic management style doesn’t align with the data.

Across the Great Moderation, the Fed’s interest-rate decisions tracked the rate a simple monetary policy rule would have recommended remarkably closely. In a 2023 Cato working paper, I found that the correlation between the FOMC’s rate target decisions and the rule’s prescription was 0.78 under Greenspan’s chairmanship. The correlation then fell with each of his successors—to 0.75 under Bernanke, 0.17 under Yellen, and essentially zero under Powell—leaving Greenspan as the most rule-following chair of the modern Fed. Independent work at the Richmond Fed similarly found that Greenspan-era monetary policy closely followed a rule, especially one augmented with the Fed’s forecasts of macroeconomic indicators.

This did not make Greenspan a closet rules man. His preference for discretion was real, and it showed up most clearly during crises. Research finds that beginning in the mid-1990s, the Fed grew more willing to cut rates after sharp market declines and more reluctant to take those cuts back, an asymmetry that fed the perception of a “Greenspan put.”[i] The clearest instance came in 1998, when a strong domestic economy would not have called for easing on its own, yet the Fed cut three times as Long-Term Capital Management failed and Russia defaulted. The Fed also facilitated a private-sector bailout of LTCM. That was a judgment overriding any rule. It was also a policy that aged least well, given the numerous easing biases and faulty bailouts that were to follow in the decades since.

Patterns from Greenspan’s tenure offer a useful case study. Greenspan’s routine policy, the quarter-by-quarter setting of rates, looked rule-like. The Fed itself claims that the conduct of monetary policy in that period delivered the stability the Great Moderation is remembered for.[ii] Greenspan’s discretion surfaced in crises, and that is where the lasting costs have accumulated since. The contradiction resolves into a lesson he half-stated himself. In that same 1997 speech, he said the aim was to anchor policy so that it becomes “less subject to the abilities” of the FOMC to analyze and forecast. He simply doubted a rule could deliver it.

On this, he was wrong. Funnily enough, his observation that the economy changes rapidly, used to dismiss rules, is precisely why rules-based monetary policy works. No one entity, not even a group of central bankers, can accurately diagnose a complex economic system such as the US in real time to hit precise macroeconomic targets. Nor should that be their goal. The benefit of rules is that they are robust to misdiagnoses of economic conditions and don’t require perfect knowledge or forecasts. It is true that rules may not achieve first-best macroeconomic outcomes, but this is impossible anyway in a system with a fiat currency and a government entity responsible for providing it. In our current system, rules will ensure the Fed is never too far from the correct target rate.

A Fed that wants the stability of the Greenspan era without the tail risks should bind itself to a rule. The current Fed has signaled an interest in more disciplined, less improvisational policy. New Fed Chair Kevin Warsh announced several task forces to improve different aspects of the Fed, including its framework for responding to inflation. This is commendable and a sign that Warsh is serious about reforms. Hopefully, the task force considers adopting a rules-based monetary policy as the best way for the Fed to achieve price stability.

President Donald Trump issued an executive order to stop the creation or development of a central bank digital currency (CBDC). Yet rumors have begun to swirl that the Federal Reserve is ignoring this order and actively working on a wholesale CBDC.

The rumors began when former Commodity Futures Trading Commission Chair Timothy Massad said, “We don’t have a central bank president who is going to get out there and speak about wholesale or retail CBDC, but that does not mean that we are not looking at how to create one.” Now those rumors have been confirmed. The Bank for International Settlements (BIS) revealed that the Federal Reserve Bank of New York (New York Fed) is still an active participant in Project Agorá.

Project Agorá Explained

Project Agorá centers on using tokenization for cross-border payments. For the unfamiliar, tokenization simply means that they are creating representations of money on a blockchain or shared ledger. It’s like creating a certificate of ownership so you don’t have to carry around the asset in question. However, because these are digital representations, they can also be programmed through smart contracts. 

In Project Agorá, the assets being tokenized are central bank reserves and commercial bank deposits. And it’s the tokenization of central bank reserves that has our attention today.

A CBDC by Any Other Name

The Bank for International Settlements has been careful to avoid the term “CBDC” when describing Project Agorá. However, at the same time, it doesn’t deny that Project Agorá is a CBDC project. In a call for participation, the Bank for International Settlements included a frequently asked questions section. Among the questions considered, it was asked whether CBDCs are being used in Project Agorá. The suggestion was neither confirmed nor denied: 

Agorá will experiment with integrating tokenised wholesale central bank money and tokenised commercial bank money. Tokenised wholesale central bank money is a version of the reserves that commercial banks currently hold in accounts with the central bank. The general public does not hold or use this money for transactions.

Yet, Project Agorá effectively uses a wholesale CBDC.

Unlike a retail CBDC designed for the general public, a wholesale CBDC is typically defined as a central bank digital liability restricted to financial institutions for interbank settlement. With that in mind, the difference between wholesale CBDCs and tokenized reserves is razor-thin (Table 1). 

If a wholesale CBDC were ever actually deployed, it would almost certainly look functionally identical to what Project Agorá built. The legal distinction seems to largely be a political and institutional workaround. Central banks have seen the pushback CBDCs have received, so now they are calling “tokenized reserves” a “technical upgrade” to sidestep the fight entirely. 

Conclusion

Because the project operates in a grey area, the Federal Reserve should be questioned. Why exactly does it view participation in this project as being compliant under the executive order? Is it that the tokenization element creates a loophole? Is it that the regional Federal Reserve isn’t required to comply with the executive order? Or is something else at play? Both Congress and the president should get answers here.