Former Federal Reserve board member Kevin Warsh has been nominated by President Donald Trump to be the new head of the U.S. central bank.
Although the path to confirmation may be bumpy, market watchers are preparing for a possible overhaul at the 113-year-old institution, but how Warsh plans to craft monetary policy is uncertain.
Should Warsh steer the Federal Reserve System over the next four years, he may put the institution on a diet, removing what he calls “central bank fast food” from the menu.
In previous speeches, Warsh has identified four measures that could be taken: changing the Fed’s metrics, revising the policy of “data dependence,” pausing near-term forecasting, and abolishing forward guidance.
“It’s necessary to set aside some of the fast food that is part of the current practice of monetary policy,” Warsh said in an April 2025 International Monetary Fund speech.
“Central bank credibility is the coin that purchases American economic strength. In Washington, a central banker can ill-afford to be anything other than a straight-shooter.”
Moving the Goalposts
Warsh said in October 2024 that the central bank has routinely shifted the goalposts for measuring inflation—from average inflation targeting to core inflation ex-housing—and how it conducts policy.
“They don’t seem to have a serious theory of inflation that is theoretical and empirical. It is not obvious that they acknowledge what their role is in prices,” Warsh told CNBC’s “Squawk Box.”
“I think in a world this dangerous, an economic policy where fiscal policy is irresponsible, the central bank needs to be very clear about its reaction function, be clear about its goals, and not look like it is lurching—that’s what put us in the mess we have.”
Based on the Fed’s commentary, the main focus appears to be on core personal consumption expenditure (PCE) inflation.
PCE—sitting at 2.8 percent—is the central bank’s preferred inflation gauge over the consumer price index.
The former is broader, and the weights and baskets are updated more frequently.
The core component strips out volatile energy and food categories.
Although Warsh has stopped short of explicitly concentrating on a specific measure, he has said that “inflation is a choice.”
Inflation, according to Warsh, has been fueled by printing money and subsidizing congressional spending rather than by the COVID-19 pandemic or Russian President Vladimir Putin’s invasion of Ukraine.
“These criticisms imply that Warsh wants to put more focus on the Fed’s balance sheet size and money supply in the conduct of monetary policy and could also be open to overhauling the Fed research staff,” Deutsche Bank economists said in a note emailed to The Epoch Times.
By Andrew Moran
