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A top candidate to succeed Jay Powell as the next Federal Reserve chair has blamed the US central bank for committing “systematic errors” and failing to control the worst inflationary surge in a generation.
Kevin Warsh, a former Fed governor and ally of President Donald Trump, accused the US central bank of acting “more as a general-purpose agency of government than a narrow central bank”, saying the “drift” had stopped it from keeping inflation at its 2 per cent goal.
“Since the panic of 2008, central bank dominance has become a new feature of American governance,” Warsh said at a Group of 30 event in Washington on Friday.
“Forays far afield — for all seasons and all reasons — have led to systematic errors in the conduct of macroeconomic policy.”
He added the Fed’s $7tn balance sheet had also enabled rampant federal government spending that had left the US’s fiscal position on a “dangerous trajectory”.
“Fiscal policymakers — that is, elected members of Congress — found it considerably easier appropriating money knowing that government’s financing costs would be subsidised by the central bank,” Warsh said, referring to the central bank’s Treasury debt purchases under quantitative easing.
The comments from Warsh, who Trump considered as a possible Treasury secretary, come at an acute moment of tension between the Fed and the president, who last week said he could not wait for Powell’s “termination” as central bank chair.
Trump partly walked back his comments, saying he had no intention of firing Powell, triggering relief in global markets.
Warsh, who was at the Fed when it began QE, was a critic on central bank policies last year, but his remarks were his first statements on its monetary policy in months.
Warsh also attacked the Fed’s involvement in issues such as climate change and inclusion — though he acknowledged the central bank had now “changed its tune” by leaving the Network for Greening the Financial System in January.
Powell’s current term as Fed chair ends in May 2026, with Treasury secretary Scott Bessent saying earlier this month that a search for his replacement would get under way in the autumn.
Warsh and National Economic Council head Kevin Hassett are considered the favourites to succeed him.
Trump’s recent criticism of Powell for refusing to cut interest rates, coupled with suggestions that the White House believed it had the authority to fire the Fed chair, have sparked fears for the central bank’s independence — leading to a sharp sell-off in equities and the dollar.
Warsh said that while he strongly believed in “the operational independence” for the Fed to set interest rates free of political pressure, that did not mean central bankers should be treated as “pampered princes”.
“When the monetary outcomes are poor, the Fed should be subjected to serious questioning,” he said.