Federal Reserve Chair Kevin Warsh has revealed a marked turn toward monetarism — a doctrine his predecessor, Jerome Powell, repeatedly rejected — in what the authors of a Fortune commentary describe as a dramatic and largely overlooked change at the U.S. central bank.

Writing in Fortune, longtime monetarist economists argue that Warsh, if not a card-carrying monetarist, is at least a camp follower of the school. By their account, the development is a welcomed earthquake: there are almost no monetarists left in the world, they note — the authors themselves have fought a lonely rearguard action for more than 40 years — and the Federal Reserve has consistently rejected monetarism, on the record, because it preferred other models for understanding the economy. In academia, monetarism has been out of fashion for decades. Yet, by Warsh's own words, a monetarist is now leading the central bank — and if the shift is sustained, the money-supply figures the Fed itself publishes could move back to the center of how its policy is judged.

What Is Monetarism?

Monetarism is a doctrine holding that money has a major influence on the level of asset prices, economic activity, and the price level. Any discussion of national income determination must therefore center on the quantity of money and the banking system, since banks produce most of the money in modern economies. When it comes to monetary policy, the doctrine holds that its objectives are best met by targeting the rate of growth of the money supply. Most major central banks moved away from money-supply targets toward interest-rate frameworks decades ago — one reason the doctrine retains so few institutional champions today.

Today, most economists dismiss monetarism. Money and banking are nowhere to be found in their macroeconomic models, or in their discussions of the course of asset prices, economic activity, and prices. Their forecasting exercises are typically based on elaborations of Keynesian income-expenditure models that exclude money and banking altogether.

The authors go further, suggesting that the Fed's backroom staff — whom they describe as mostly Keynesian-leaning Democrats — do not want alignment with a philosophy usually affiliated with Milton Friedman. They point to what Joe Biden said in 2020 about how the dean of monetarism wasn't "running the show anymore."

In the authors' view, this helps explain why today's mainstream economists failed to anticipate the post-COVID burst of inflation in the U.S. and elsewhere. It also evokes Queen Elizabeth's question during a November 2008 visit to the London School of Economics, as the Great Financial Crisis was evolving: "Why did nobody notice it?" A tiny band of monetarists — including the authors and economist Tim Congdon — did notice the crisis, they write, and also anticipated the post-COVID surge in inflation.

Warsh's Monetarist Turn

Kevin Warsh, the commentary argues, has not swallowed the economics profession's entrenched non-monetary ways of thinking. Like a jack-in-the-box, he has sprung out as a monetarist.

Warsh first signaled the change in August at the Fed's Jackson Hole Symposium, where he enunciated a set of principles that included the idea that changes in the money supply had something to do with economic activity and inflation.

He elaborated further on September 16, during his post-Federal Open Market Committee (FOMC) press conference, along four lines highlighted by the authors.

Prices and Inflation

First, Warsh used language monetarists favor on individual price changes and inflation: higher energy prices or food prices do not "cause" inflation. He said the Fed cannot address any individual prices, such as those for food and energy, but that the Fed can ensure those relative price changes do not have second- and third-order effects. In other words, the Fed is responsible for overall price changes, not relative price changes.

As monetarists, the authors would go a step further: unless there has already been excess money growth over the preceding year or so, relative price changes cannot translate into sustained changes in the overall price level. For that reason, they tend to discount the validity of discussions about second- or third-round effects.

Distribution and the Fed's Focus

Second, when asked how the Fed's rate hike would affect lower-income groups in the U.S., Warsh said the Fed does not deal in questions of distribution. The central bank looks at aggregates such as the labor market, GDP, total spending, and overall inflation. Having said that, he conceded that the lowest income classes — those without financial assets and those who tend to live from paycheck to paycheck — would benefit most from stable prices. That, the authors write, was a monetarist response.

"Datapoints Are Noisy"

Third, when asked whether the most recent CPI data had influenced the Fed's decision to raise rates, Warsh said that was not the case. "Datapoints are noisy," he argued. What mattered was the trend — and the trend of inflation was still too high.

The response accords precisely with the monetarist view that short-term forecasts of inflation are simply not feasible, because there is too much noise in the data. Monetarist analysis, the authors note, can provide a range or channel for price levels, or inflation, over a one- to three-year horizon — but not a month-to-month forecast.

The Neutral Rate Question

Fourth, when asked about the level of the federal funds rate relative to its "neutral" rate, or r*, Warsh replied that as a student of economics he had studied the neutral rate — the Wicksellian real rate, named after Swedish economist Knut Wicksell. The concept, he declared, was of academic interest but had no bearing on the Fed's practical decision-making.

Again, the authors write, this comports with monetarist views on interest rates. Administered rates such as the fed funds rate and short-term market interest rates can be both a driver of future money growth and a consequence of prior monetary growth. If the money growth rate doubles, the first effect is lower rates; then, as the economy recovers, demand for credit increases and inflation rises, and the second effect is an increase in rates. That, according to the commentary, is exactly what happened during and after the COVID pandemic.

Because changes in broad money growth have this two-stage effect on interest rates, the authors argue, it makes no sense to rely on a Wicksellian framework of equilibrium or neutral interest rates. The Quantity Theory of Money, by contrast, provides a fairly precise guide to the appropriate rate of money growth for an economy. It is therefore always better, they contend, to rely on the rate of broad money growth as a guide to the stance of monetary policy than on the abstract, non-measurable concept of an equilibrium interest rate.

Broad Money Growth as the Gauge

On at least two occasions during the September 16 press conference, Warsh said he would have been hard-pressed in recent months to describe financial conditions as restrictive. Judging the level of interest rates against an unobservable "neutral" rate would clearly have been challenging. Instead, the authors observe — though Warsh did not say so — the rather high rate of broad money growth over the past six to nine months would have provided a clearer metric on the state of monetary and financial conditions: growth in the 6-8% range has clearly been too high. To hit the Fed's inflation target of 2%, they argue, the rate of growth in the money supply needs to be reduced to around 6%. Broad-money aggregates such as M2 are published on a regular schedule in the Fed's money stock releases, so the measure on which the authors rest their case can be tracked directly at the source. Whether future FOMC communications keep returning to money growth will be the clearest test of how far this turn extends beyond press-conference rhetoric.

After a shaky start with his first two press conferences, Chairman Warsh is clearly gaining confidence as he begins to articulate a framework consistent with monetarism, the commentary concludes. It promises to be a seismic shift for the Fed.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune. This story was originally featured on Fortune.com.