One of the things that Warsh said at the press conference was that the markets should be playing the ball - the yields, inflation, stocks, employment - not the referee (the Fed). He said the Fed was not going to spoon feed the market. He also said that in crisis mode, providing guidance -spoon feeding - is prudent, but in benign moments it is not. Chair Warsh appears to be taking a more hands-off approach. You could argue that he believes the market is better at pricing financial conditions than the Fed itself. In a sense, he is checking the Fed's ego at the door.His message seems to be that the federal funds rate is not the only policy tool that matters. Instead, the entire yield curve provides a more complete picture of financial conditions. If markets determine that growth is too strong, employment remains too resilient, or inflation pressures are building, longer-term yields will move higher on their own, tightening financial conditions without the Fed having to lead the way.That appears to be what we're seeing today. Treasury yields are rising, the yield curve is steepening, and stocks are under pressure. From his office, Warsh may simply be saying, "The market is doing the work. It sees stronger growth, a firm labor market, and inflation risks, and it is repricing accordingly."If those conditions persist, the Fed may eventually need to raise the federal funds rate. But under this framework, the market leads and the Fed follows. Rather than trying to dictate financial conditions, the Fed validates what the market has already priced in.Stocks are now lowerDow industrial average -1130 points or -2.15%.S&P index -95.84 points or -1.29%Nasdaq -331 points or -1.34%In the debt market:2 year yield -4.3 basis points at 4.233%5 year yield l+2.1 basis points at 4.383%10 year yield +6.3 basis points at 4.667%30 year yield +9.9 basis points at 5.194%For Fed officials accustomed to taking a more active role in shaping market expectations, this approach is likely to be unsettling. If the Fed intends to become more of a follower than a leader, it also raises questions about the purpose of the various task forces. Why devote so many resources to studying and communicating policy if the market is expected to determine financial conditions on its own?This may ultimately prove to be a better framework, but it represents a significant departure from how the Fed has operated for decades. Disruptive ideas often feel uncomfortable at first. The challenge is to first understand the new framework before deciding whether to trust it. Right now, we're still in the understanding phase. Whether that understanding evolves into trust remains to be seen.One of my recurring criticisms of President Trump is that he often tries to solve perceived problems by creating new ones. Warsh, on the other hand, seems to be challenging the premise itself. His message appears to be that monetary policy doesn't have to solve every problem. Instead, the market—through the collective buying and selling decisions of millions of participants—can often do the heavy lifting by repricing risk and adjusting financial conditions on its own.In that framework, the Fed becomes less of an engineer trying to steer the economy and more of an observer, stepping in only when market pricing and the economic fundamentals point to a need for action. This article was written by Greg Michalowski at investinglive.com.