Kevin Warsh was nominated by President Trump in January 2026 to replace Jerome Powell as Chair of the Federal Reserve. He was confirmed by the US Senate last week and sworn in as the new Fed chair earlier this week. What are some of his views and priorities as he takes office? For a clue, I looked at a just-published collection of essays by economists and central bankers, Finishing the Inflation Job and New Challenges for Monetary Policy, edited by Michael D. Bordo, John H. Cochrane, and John B. Taylor (Hoover Press, 2026, scroll to the bottom of the link and the advance page proofs of book can be downloaded for free in sections). The book described papers and comments from a conference held a year ago in May 2025–that is, well before Warsh was nominated. Here are some of his comments that struck me:
On central banks and causes of inflation:
Inflation is a choice. The world’s central bankers get to choose the inflation rate. … The central bank establishes the policy rate and steers in the direction of an inflation objective. Central banks … are not victims. … Inflation is not caused by pandemics or autocrats around the world. The inflation level is set by the world’s central bankers. And without going too far afield, in my view, it is principally determined by government spending and printing. …
It would be nice if one could say bygones are bygones. It would be nice if households and businesses believed that past errors had no bearing. But the precondition for stable prices is confidence on the part of households and businesses that central banks will deliver stable prices. And the best way to give them that confidence is to have achieved it. It is up to the central bank to ensure that whatever shocks occur outside are one-off effects. The inflation
rate, that is, the second- and third-order consequence of changes in prices, not the first-order change in the price level, is up to the world’s central banks.If central banks assert that outsize changes in the price level affect inflation and then drive a set of inflation outcomes, the banks are, in a way, admitting something against their own interest. They’re saying, in a sense, that their credibility has been impaired and that inflation will occur because they don’t have the credibility to stop it.
On the aftermath of earlier decisions to conducting monetary policy with quantitative easing, and its interaction with conducting monetary policy by adjusting the federal funds interest rate:
In a broad sense, we should acknowledge now what was acknowledged at QE’s creation in 2008: The Federal Reserve established a second monetary policy instrument, a supplementary instrument that has an important effect on inflation. … [W]ith a very active, large, and often growing balance sheet, we have two policy instruments that are imperfect substitutes for each other, sometimes working at cross-purposes and at other times working together. But if the printing press could be quieted, we could have lower policy rates, because a $7 trillion balance sheet is affecting inflation. There are many benefits of a small balance sheet, including lower rates. However, a better economic outcome is probably the most important. …
First, a surge in the balance sheet is understandable in periods of great shocks. The Fed was created after a panic early in the 20th century. So nothing I say should be taken as any direct criticism of what happened to the balance sheet in 2008, or what happened in the darkest days of 2020. One should give the benefit of the doubt, I think, to central bankers in harm’s way. Second, I think it’s strange to say in 2008 and 2020 that the balance sheet expansion was monetary policy by other means, but not in more benign times. It’s odd not to have any rhetorical or real symmetry. In my view, the balance sheet can’t be construed as monetary policy in crisis times, but the balance sheet has nothing to do with monetary policy in any other circumstance. That kind of asymmetry goes against the very spirit of policy rules and moves us to a policy of full discretion.
Finally, when I joined the central bank in 2006, we had about an $800 billion balance sheet. If you were to try to scale that to the growth of the economy, or to the growth of financial markets, one might end up with a $2.5 trillion or $3 trillion balance sheet today. As we sit here, the balance sheet is about $7 trillion. The right question was raised earlier about transitions between policy regimes. The transition from a scarce reserve system—in which banks were relying predominantly on each other for liquidity, with the central bank entering the market more rarely in periods of extreme illiquidity—to an excess reserves regime was not sudden. Going back to some status quo ante, or adopting a new, third-way model, will take time. The transition is not something that could or should happen overnight. But banks will grow accustomed to the liquidity regime around them. And if the central bank has a permanently larger role, not just in crises but in normal times, and is in some sense providing liquidity to the banks during all seasons and for all reasons, then one has fundamentally changed the role and responsibility of the central bank.
The transition to what I think is a more prudent system will take time, deliberation, and an excess of communication with the public and the institutions in the banking system itself.
