Kevin Warsh, handpicked by U.S. President Trump to succeed Fed Chair Powell, is brewing a series of ambitious reform plans: institutional change, lower policy rates, a new approach to tackling inflation, a significantly reduced balance sheet, an independent Fed, a more focused mandate, enhanced coordination with the U.S. Treasury, and reducing the "cacophony" from the Fed's 19 policymakers.
As San Francisco Fed President Daly said last Friday: "He will certainly come into office with his own set of ideas and a blueprint for governance. But ultimately, the actual trajectory of the economy will determine the problems we truly need to address, and this is the inevitable path for every Fed Chair, all policymakers, and the entire staff."
At Tuesday's confirmation hearing for Warsh, lawmakers are certain to bombard him with numerous questions about these reform proposals.
Below are excerpts from some of his previous remarks on these issues:
Institutional Change
On July 17, 2025, in an interview with CNBC, Warsh said, "The overall operation of monetary policy has been broken for quite some time. The central bank standing there today is fundamentally different from the one I joined in 2006.
I believe we absolutely do not need the 'policy continuity' that led to the biggest macroeconomic policy mistake in 45 years, tore the nation apart, and triggered runaway inflation. When a central bank loses credibility, that continuity is meaningless...... We need a thorough institutional change at the Fed."
Lower Rates
Regarding interest rates, on July 8, 2025, Warsh said on Fox Business, "Rates should have been lower."
Later in November of the same year, he also wrote in a Wall Street Journal op-ed, "The Fed's bloated balance sheet, originally designed to rescue large corporations during the past crisis period, can now be significantly slimmed down.
The enormous space released from this can be translated into lower rates, truly benefiting households and small and medium-sized enterprises."
Inflation
On inflation, Warsh said in an IMF speech on April 25, 2025, "The cognitive fallacies that led to this great inflation stemmed mainly from a mix of the following: the central bank naively believing its price stability goal would be achieved automatically...... believing those large, black-box-like Dynamic Stochastic General Equilibrium (DSGE) models were actually grounded in reality...... believing monetary policy had nothing to do with the money supply...... believing the central bank was a powerless bystander in the face of forces beyond its control......
Even blaming the inflation surge on geopolitical shocks from Putin and the pandemic, rather than reflecting on the government's rampant spending and money printing."
Additionally, he believes AI development will lower inflation, stating in a July CNBC interview that same year, "AI will drastically reduce the cost of almost everything...... I think we might be at the beginning stages of a structural decline in prices."
Reducing the Balance Sheet
Warsh is well known for advocating a reduction in the Fed's balance sheet. On May 30, 2025, at the Reagan National Economic Forum in Simi Valley, California, he said, "My advice is to reduce the size of the balance sheet...... Interestingly, if you have a smaller balance sheet, you can actually have lower interest rates...... (The Fed's current balance sheet) is larger by trillions of dollars than what is actually needed."
Fed Independence
In a March 26, 2010, speech to the Shadow Open Market Committee in New York, Warsh said, "The Fed's greatest asset is its institutional credibility. This credibility is rooted not only in its anti-inflation reputation but is even broader in meaning.
It is tightly bound to the Fed's various actions and balance sheet commitments. This credibility is indispensable. It enhances the weight of our external communication and lends authority to our economic assessments. It amplifies the ripple effect that announcing adjustments to short-term policy rates has on long-term rates."
He added, "In a sense, it is the true 'money multiplier' in the execution of monetary policy...... Fortunately, making this asset shine and successfully passing it on to today's central bankers does not require them to have perfect foresight or absolutely flawless judgment.
But it does require an absolute independence to resist the political whims of Washington, the profit-seeking demands of Wall Street, and the extremely harmful short-termism that can derail monetary policy."
Narrowing the Mandate
In his April 25, 2025, IMF speech, Warsh urged the Fed not to blindly expand its power, stating, "The more the Fed opines on matters beyond its mandate, the more it damages its core ability to ensure price stability and maximum employment.
Simultaneously, it becomes more vulnerable to political forces. This tendency of the Fed to blindly expand its power portends an existential risk."
Fed-Treasury Relationship
On July 17, 2025, Warsh said in a CNBC interview, "If a new accord can be reached and...... the Fed Chair and the Treasury Secretary can thoughtfully and clearly communicate to the market: 'This is our target for the size of the Fed's balance sheet,' and the U.S. Treasury can also state: 'This is our debt issuance schedule,' and assuming that by the end of this administration's term, our balance sheet will reach an equilibrium state, then the market will have clear expectations for the future...... This is not about the Fed being 'in the government's pocket.'
This is about coordinating with the U.S. Treasury on goals the Fed considers critically important and vigorously pursues, and developing a默契 (tacit understanding) in how to communicate this information to the market in a synchronized manner."
Fed Transparency and "Cacophony"
As early as his 2006 confirmation hearing for a governorship, Warsh said, "Under Chairman Greenspan's leadership, the Fed has taken effective steps over the past decade to articulate and explain its policy intentions with greater transparency. As a result, market volatility has decreased significantly, and our capital markets have become deeper, broader, and more dynamic than ever before."
A decade later, in an essay titled *The Fed Needs New Thinking*, he criticized the Fed, saying "The Fed's 'forward guidance' promising low rates for a long time peddles ambiguity under the banner of clarity. It uses the pretense of transparency to allow a cacophony of communication voices."
Last November, Warsh also criticized Fed officials in a column for frequently appearing to "signal," writing, "Fed bigwigs would do better to seize fewer opportunities to offer their latest musings. The habit of 'wavering' in rhetoric with the latest data releases is not only commonplace but also highly counterproductive."
