Former Federal Reserve Governor Walsh strongly criticizes the Federal Reserve, hinting at a possible bid for the chairmanship position.

As the independence of the Federal Reserve continues to be questioned, Kevin Warsh, a former Federal Reserve governor who is widely seen as one of the top contenders to replace current Chair Jerome Powell in President Trump's mind, publicly criticized the Fed's policy path, sending a strong signal that he may compete for the top position at the Fed and lead the direction of monetary policy. At a meeting held on Friday afternoon, Warsh bluntly pointed out that the Federal Reserve's current predicament is largely self-inflicted, and called for a "strategic reset" to rebuild its credibility. Warsh emphasized, "In our constitutional republic, the central bank only maintains its independence and societal acceptance when it has earned it and successfully fulfilled its duties." He noted that the Fed's policy operations have veered off course and begun to involve politically controversial issues like climate change and social inclusivity, rather than focusing on its "enduring core responsibilities." Warsh's remarks come at a time of escalating tensions between President Trump and current Federal Reserve Chair Jerome Powell. Recently, Trump proposed a "liberate day" tariff plan with a very broad scope, sparking concerns in the markets about economic growth. Powell publicly stated that this trade policy could disrupt the Fed's ability to balance controlling inflation and achieving full employment. Investors interpreted this stance as a signal that the Fed may pause interest rate hikes. Trump subsequently harshly criticized the Fed's decision and indicated that Powell should "resign sooner rather than later." Although he later clarified that he would not fire Powell to calm the markets rattled by threats to the central bank's independence, this issue has sparked widespread attention in Washington. Policymakers, economists, market analysts, and lawmakers have come out to defend the Fed's independence. Warsh particularly harshly pointed out that the Fed's balance sheet, currently as high as $6.7 trillion, is evidence of its "systemic mistakes in macroeconomic policy." He believes that the Fed's large-scale balance sheet expansion indirectly encourages irresponsible fiscal behavior by Congress, as politicians believe the Fed will "pick up the tab" and are thus more likely to approve fiscal spending. "The credibility of the central bank is the 'currency' that underpins the strength of the U.S. economy," Warsh warned, stating that the current Fed has severely overdrawn this valuable resource. Since leaving the Fed in 2011 over disagreements with quantitative easing policies, Warsh has been a critic of monetary easing policies. He also pointed out this time that the Fed relies too much on lagging data, frequently makes predictions that are often wildly off the mark, leading to a "false sense of precision" in the market, and relies too heavily on "forward guidance" to guide market expectations. He emphasized that the Fed needs to return to its core responsibilities: maintaining price stability and achieving maximum employment, rather than chasing short-term hot-button issues. "The governing goal is for the central bank to adapt to the democratic system, not for the democratic system to adapt to the central bank."