CounterPunch Exclusives

CounterPunch Exclusives

Kevin Warsh, Fed Transparency, and Corruption

This week was the first meeting under new Fed Chair Kevin Warsh of the Federal Reserve Board’s Open Market Committee (FOMC). Warsh has promised to restructure the Fed, but it is still not clear he means by this.

Donald Trump very explicitly picked Warsh because he expected that he would lower interest rates. That goes against Warsh’s past history of being an inflation hawk. In his earlier tenure as a Fed governor during the Great Recession, Warsh was arguing against expansionary monetary policy even when the unemployment rate was close to 10%. And he was concerned about hyperinflation when the actual inflation rate was near zero.

We still don’t know how Warsh plans to resolve these seemingly contradictory impulses. He has said that he wants to reduce the Fed’s balance sheet. This would mean selling off trillions of dollars of bonds that the Fed bought both during the financial crisis and more recently during the pandemic.

Selling off bonds would have the effect of raising the long-term interest rates that matter most for the economy, like car loans and mortgages. But it’s possible that Trump wouldn’t be bothered, since he probably doesn’t........

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