Former Fed Governor Warsh Calls for Regime Change at Fed Citing Leadership Failure

Kevin Warsh, a former Federal Reserve governor and a top pick by Donald Trump to lead the central bank, has openly criticized the current leadership of the Federal Reserve, particularly Chairman Jerome Powell. During a recent interview, Warsh called for a "regime change" at the Fed, citing what he perceives as a failure in leadership and a lack of credibility among the current officials. He specifically criticized the Fed's slow response to interest rate cuts, suggesting that this hesitancy is a mark against the current leadership.

Warsh's criticism extends beyond Powell, targeting the entire group of "holdover" Fed officials. He believes that their credibility deficit is a significant issue and that their approach to policy conduct needs to change. Warsh also endorsed Trump's strategy of publicly attacking the Fed, stating that such pressure is necessary to bring about the needed changes in policy conduct. He did not shy away from the White House's criticisms of Powell, including the costly renovation of two Fed buildings in Washington D.C., and hinted that a regime change at the Fed is inevitable.

In addition to his calls for a change in leadership, Warsh proposed a more coordinated approach between the Fed and the Treasury Department to handle the country's debt. He suggested the need for a new accord between the two institutions, similar to the one established in 1951, which separated Fed monetary decisions from Treasury's fiscal needs. Warsh believes that the current situation has the two bodies working at cross purposes and that a more open dialogue between the Fed chair and the Treasury secretary is necessary to clearly outline the goals for the size of the Fed’s balance sheet.

Warsh's proposal includes a rate cut as the beginning of the process to get the balance right, directly challenging Powell's current course of action. He supports the idea of quantitative tightening but believes the Fed is implementing it incorrectly without Treasury input. Warsh's stance aligns with Trump's calls for lower rates and a tighter partnership between the Fed and the Treasury, positioning himself as the candidate who can bring about these changes if appointed as the Fed chair.