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Kevin Warsh’s Three Tasks: Shrink the Fed, Tame Inflation, Manage the President.
Kevin Warsh has spent much of the last 15 years criticizing the Federal Reserve for getting too big, mismanaging inflation and compromising its independence.
So as President Trump’s pick to succeed Jerome Powell as chair of the central bank, what does he do about it? He faces three key tests. First, significantly shrink the Fed’s balance sheet without upsetting markets. Second, push inflation down to 2% and keep it there. Third, do this without meddling by Trump that compromises the Fed’s independence. All will be tougher than they look.
Downsizing the central bank
As a Fed governor from 2006 to 2011, Warsh worked with then-chair Ben Bernanke to manage the global financial crisis. He quit over Bernanke’s use of “quantitative easing,” the purchase of trillions of dollars of bonds, paid for by issuing reserves (electronic money) to banks. Between 2008 and 2022 the Fed’s assets grew from $900 billion to $9 trillion. They have since declined to $6.6 trillion.
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