Kevin Warsh Blames Fed Leadership for Inflation Crisis, Calls for Radical Overhaul

• Why is Kevin Warsh calling for a Fed "regime change"?
• How does Warsh's critique align with Trump's Fed criticisms?
• What's Warsh's radical proposal for Fed-Treasury coordination?
• Does the bond market contradict Warsh's rate cut argument?
• How is Warsh positioning himself in this Fed debate?
• What historical precedent supports Warsh's Treasury-Fed proposal?
• How are markets reacting to this Fed criticism?
• What would a "Warsh Fed" look like?
• Frequently Asked Questions

Former Federal Reserve Governor Kevin Warsh has launched a scathing critique of the current Fed leadership, particularly Chair Jerome Powell, accusing them of "total leadership failure" in managing inflation. Warsh advocates for a complete "regime change" at the central bank, aligning with Trump-era criticisms while proposing unprecedented coordination between the Fed and Treasury to address America's $36 trillion debt burden. This explosive commentary comes as the Fed faces mounting pressure over its interest rate policies and balance sheet management.

Why is Kevin Warsh calling for a Fed "regime change"?

In a remarkably candid interview, Warsh didn't mince words about the current Fed leadership. "The problem lies with the holdovers at the Fed, in my view," he stated, taking direct aim at Powell and other long-serving officials. His criticism centers on what he sees as their disastrous handling of inflation and interest rate policy. Warsh particularly slammed the Fed's "low-rate addiction," arguing their timid approach to rate cuts demonstrates a complete lack of credibility. He's not just suggesting replacing Powell when his term expires in May 2026 - he wants to tear up the Fed's entire playbook.

How does Warsh's critique align with Trump's Fed criticisms?

Warsh's comments echo former President Trump's persistent attacks on Powell, creating what looks like a coordinated assault on Fed independence. He openly endorsed Trump's strategy of publicly pressuring the Fed, calling it necessary to force policy changes. "Publicly pushing the Fed is justified because we need a regime change in policy conduct," Warsh argued. He didn't defend Powell against White House criticisms, including attacks over Fed building renovations. When asked directly if TRUMP should fire Powell, Warsh gave a telling non-answer: "I think regime change at the Fed will happen in due course."

What's Warsh's radical proposal for Fed-Treasury coordination?

Warsh dropped a bombshell idea: reviving a 1951-style "Accord" between the Fed and Treasury to jointly manage America's crushing debt burden. He claims the current system has both institutions working at cross-purposes. In his vision, the Fed Chair and Treasury Secretary WOULD jointly communicate with markets about balance sheet objectives. While supporting quantitative tightening in principle, Warsh claims the Fed is executing it poorly without Treasury input. "The Fed has the balance wrong," he said. "Rate cuts are just the start of getting that balance right."

Does the bond market contradict Warsh's rate cut argument?

Here's the rub in Warsh's argument: the last time the Fed cut rates, Treasury yields actually ROSE instead of falling as expected. This anomaly throws cold water on the idea that rate cuts automatically reduce debt servicing costs. Warsh conveniently ignored this inconvenient fact in his critique. Market data from TradingView shows Treasury yields have behaved unpredictably during recent policy shifts, suggesting the relationship between rates and debt costs isn't as straightforward as Warsh claims.

How is Warsh positioning himself in this Fed debate?

Warsh has carefully checked every box in the anti-establishment Fed playbook: backing Trump, demanding lower rates, attacking Powell's judgment, and proposing radical Treasury coordination. With Trump potentially returning to power, Warsh appears to be auditioning as the "hammer" to smash the Fed's foundations. His comments suggest he'd welcome a leadership role in reshaping the central bank, though he stopped short of openly campaigning for Powell's job.

What historical precedent supports Warsh's Treasury-Fed proposal?

The 1951 Treasury-Fed Accord that Warsh references marked a pivotal moment in central banking history. Post-WWII, the Fed had kept rates artificially low to help finance government debt, fueling inflation. The Accord restored Fed independence in setting rates based on economic conditions rather than debt financing needs. Warsh's call for a "new Accord" implies he believes the current Fed has swung too far toward independence and needs to coordinate more closely with fiscal authorities - a controversial stance that would alarm many economists.

How are markets reacting to this Fed criticism?

Financial markets hate uncertainty, and Warsh's comments add fuel to concerns about potential political interference in Fed operations. CoinGlass data shows increased volatility in Fed funds futures as traders weigh the possibility of more aggressive rate cuts. The dollar index has shown unusual sensitivity to political Fed commentary recently, suggesting markets are pricing in higher political risk premiums. This comes at a delicate time, with the Fed already walking a tightrope between fighting inflation and avoiding recession.

What would a "Warsh Fed" look like?

Based on his comments, a Fed under Warsh's influence would likely feature: 1) More overt political responsiveness, 2) Closer Treasury coordination on debt management, 3) Faster rate cuts despite inflation risks, and 4) Possibly more public conflict between policymakers. This would represent a dramatic break from the Fed's traditional emphasis on independence and technocratic decision-making. Whether this would stabilize or destabilize markets remains hotly debated among analysts.

Frequently Asked Questions

Why is Kevin Warsh criticizing Jerome Powell?

Warsh believes Powell and other "holdover" Fed officials have completely failed in their leadership, particularly in managing inflation and interest rate policy. He argues their timid approach to rate cuts shows lack of credibility.

What does Warsh mean by "regime change" at the Fed?

He's calling for a complete overhaul of Fed leadership and policy approach, not just replacing Powell but fundamentally changing how the central bank operates, particularly in coordinating with the Treasury.

How does Warsh propose handling America's debt?

He wants a new formal agreement between the Fed and Treasury, similar to the 1951 Accord, to jointly manage the $36 trillion debt through coordinated balance sheet policies and communication strategies.

Is Warsh's criticism of Powell politically motivated?

While Warsh frames his arguments in policy terms, his alignment with Trump's criticisms and refusal to defend Powell against political attacks suggests significant political dimensions to his stance.