Kevin Warsh returns to Federal Reserve with ‘regime change’ agenda

WASHINGTON

Kevin Warsh, the incoming chair of the U.S. Federal Reserve, returns to the central bank with an ambitious reform agenda and the looming threat of intimidation by the U.S. President Donald Trump.

Warsh was confirmed to a four-year term as the central bank’s chief by the Senate last week and was set to take his oath of office at the White House on May 22.

The 56-year-old native of upstate New York left his first term on the board prematurely in 2011, griping over policy differences.

Now, he returns to lead the Fed—tasked with, among other things, managing U.S. inflation and ensuring maximum employment—with an agenda that includes changing how it makes decisions, communicates those moves, and implements policy shifts.

He does so at a time of unprecedented political pressure on the Fed’s independence, with Trump demanding lower interest rates to spur activity in the world’s largest economy.

Trump frequently criticized and insulted Warsh’s predecessor, Jerome Powell, over a lack of rate cuts. His administration targeted Powell in a criminal probe and is still attempting to remove another Fed governor, Lisa Cook.

At his confirmation hearing before the Senate banking committee, Warsh vowed to preserve the Fed’s independence, saying he would “absolutely not” be the president’s puppet.

“I am honored the president nominated me for the position, and I’ll be an independent actor if confirmed as chairman of the Federal Reserve,” he said.

Warsh started his career at investment giant Morgan Stanley, specializing in mergers and acquisitions.

He later joined then-U.S. president George W. Bush’s administration, serving as a White House economic policy advisor from 2002 to 2006 before being nominated to the Fed’s Board of Governors.

Warsh served on the board during the global financial crisis and eventually left in 2011 over differences on how the central bank should tackle it. He has since worked on Wall Street and on the boards of various companies, including UPS.

“I saw the Fed and its people at their very best, but I also witnessed an institution that was tempted to play a larger role in the economy and society,” Warsh said at his confirmation hearing.

In his first tenure at the Fed, Warsh was considered a “hawk”—a policymaker who favors addressing the inflation side of the mandate, usually by raising interest rates.

In recent years, he has changed his tune, aligning with Trump’s demands for lower interest rates despite the U.S. economy facing stubbornly high inflation since the Covid-19 pandemic.

Warsh blames high inflation on “policy errors” by the Fed in 2021 and 2022.

He has called for “regime change” in policymaking, including changing the data the Fed bases its decisions on, removing forward guidance from its communications and encouraging more of a “good family fight” at meetings.

He also wants to shrink the Fed’s balance sheet, preferring to use interest rates as the central bank’s primary tool on both sides of its mandate.

He has argued that the Fed has strayed into politics, again echoing a key Trump talking point.

U.S. consumer inflation in April came in at 3.8 percent, a three-year high, with American households battered by years of above-expected price increases since the pandemic.

At a Fed meeting last month, a majority of policymakers indicated that rate hikes may be necessary if inflation continues to remain above the Fed’s long-term target.

Warsh has argued that productivity gains from artificial intelligence-led innovation will allow the U.S. economy to grow rapidly without adding to inflation.

The U.S. unemployment rate has remained relatively stable around 4.3 percent for the last year. But job growth has seenawed wildly between expansion and contraction from month to month.

David Wessel, senior fellow at the Brookings Institution, said Warsh has outlined a wide-ranging agenda, but one should “watch what he does, not what he has said.”

“Kevin Warsh will not be able to deliver the rate cuts that the president wants,” said Wessel. “At some point, the president may grow impatient and will begin attacking Mr. Warsh as he did Jerome Powell.”