Former Fed governor Warsh blasts US central bank for leaving its lane

Former Fed Governor Kevin Warsh Criticizes Central Bank Practices

By Francesco Canepa

WASHINGTON (Reuters) – Former Federal Reserve Governor Kevin Warsh, who discussed with President Donald Trump the possibility of replacing U.S. central bank chief Jerome Powell, criticized the Fed’s operations.

In a speech filled with long-standing critiques but lacking specifics, Warsh emphasized the need for fundamental changes, asserting that while he believes in the Fed’s “operational independence,” its actions have exceeded its mandate and compromised that independence.

“Independence is reflexively declared, all too often in my view, when the Fed is criticized,” Warsh remarked at a Group of Thirty conference in Washington, which gathered financiers and academics.

He advised the Fed to cease relying on outdated government data and urged transparency regarding policymakers’ economic forecasts and interest rate projections.

Warsh challenged the effectiveness of forward guidance, stating it has little relevance in normal economic conditions.

With a background working for Morgan Stanley and serving under former President George W. Bush, Warsh criticized the Fed for exacerbating the U.S. national debt and encroaching beyond monetary policy. He pointed to the Fed’s missteps post-COVID-19 that led to rising inflation.

Warsh believes that the more the Fed engages in matters beyond its primary role, the more jeopardized its goals of price stability and full employment become.

Regarding market reactions, Trump has publicly criticized Powell for his reluctance to cut interest rates, leading to financial market sell-offs amidst fears of an economic recession triggered by Trump’s tariffs. Although initially considering a move to replace Powell, Trump has since stated he intends to retain him.

Warsh, currently a fellow at Stanford’s Hoover Institution, emphasized the importance of maintaining the Fed’s financial stability role without exceeding its mandate, reiterating,

“Fed claims of independence in bank matters undermine the case for independence in the conduct of monetary policy.”

Celebrated by some hawkish central bankers, Warsh’s appeal to return to traditional central banking practices highlighted ongoing discussions about the Fed’s future leadership, with interviews for the top position expected in the fall.