OPINION:
President Trump hit the bull’s-eye in selecting Kevin Warsh as the next Federal Reserve Board chairman.
In contrast with Jerome Powell, Mr. Warsh is not political, and he is not an inflationist. He has declared many times that he rejects the discredited Phillips Curve notion that growth causes inflation. Mr. Powell believed that, and it led to four years of Biden stagflation, with stagnant real wages and high prices.
I believe Mr. Warsh will be easily confirmed and, by late spring, will be the Fed’s CEO.
What should he do when he gets there? We hope he will hit the ground running to reverse the failures of his predecessor, which led to slow growth and 9% inflation in 2021.
First, I agree with former World Bank President David Malpass that the overriding goal of the Warsh Fed should be to keep the dollar strong and prices stable. Defend the dollar.
I’m worried that Mr. Trump wants a weak dollar, which is what Mr. Powell has given us of late. The decline in the dollar relative to other currencies and gold could raise prices and put the dollar’s status as a global reserve currency at risk.
Don’t go there.
Second, Mr. Warsh must move quickly to clean house at the Fed. He should start by cutting the bureaucracy by 30%, as he has suggested.
The Fed board doesn’t need more than 3,000 bureaucrats and hundreds of Ph.D. economists, given all the mistakes it has made in recent years. It could have just as easily created 9% inflation with half that many people.
This is urgent because the empire is already preparing to strike back.
Krishna Guha, a former New York Fed official, warned recently in the Financial Times that if Mr. Warsh tries to institute his “restructuring plan in the spirit of [MAGA] regime change, it will maximise resistance and opposition from the vast majority of the others in the system.”
It’s critical for Mr. Warsh to “know thine enemy,” or the Fed’s blob will chew him up and spit him out. Fed staff will openly work to subvert his primary strategy to conquer inflation.
It would also set a good example of fiscal restraint for the Fed to practice what it preaches: fiscal discipline. Let’s not forget that Mr. Powell spent nearly $2 billion on renovating the new Taj Mahal Fed building in downtown Washington. Talk about setting a bad example!
Third, Mr. Warsh is exactly correct that adding trillions of dollars to the Fed’s $6.5 trillion balance sheet “was the worst Fed mistake in 45 years.” Just 25 years ago, the balance sheet of the Fed contained less than $1 trillion in assets. Last year, it hit an all-time high of more than $8 trillion.
Speeding up the sale of these stranded assets would help suck excess money out of the economy and bring inflation down to its 2% target while boosting affordability.
There’s an old saying about being successful in life: “You always want to succeed a failure.” Mr. Warsh is now in such a position to succeed as he replaces the Powell regime. He can help President Trump restore price stability, and if he does, he will go down in history as one of our greatest Fed chairs in history.
• Stephen Moore is a former Trump senior economic adviser and a co-founder of Unleash Prosperity.
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