Kevin Warsh, former governor of the US Federal Reserve, walks to lunch in Sun Valley, Idaho, US, on Wednesday, July 9, 2025. (David Paul Morris/Bloomberg via Getty Images).
Now that President Donald Trump has announced his pick to helm the Federal Reserve after a stage-managed race, all eyes in the financial world are turning to how Kevin Warsh will shake up the central bank if he's confirmed to the post.
Last year, Warsh reiterated his support for what he called "regime change" at the Fed, blaming the central bank for failing to prevent pandemic-era inflation in the first half of the Biden administration. "They have lost credibility," Warsh said in a June 2025 Fox News interview.
"That means regime change in how we're thinking about inflation, how we're conducting policy... it's also regime change in terms of how we're supervising and regulating banks."
One possible item near the top of Warsh's to-do list is slashing the Fed's $6.6 trillion balance sheet. The central bank already completed a round of so-called "quantitative tightening" earlier this year, a step that shrinks the Fed's liquidity to banks and prevents excess cash sloshing around financial markets. That grows the interest payments that the Fed is obligated to pay banks.
"The Fed’s bloated balance sheet, designed to support the biggest firms in a bygone crisis era, can be reduced significantly," Warsh said in a November op-ed piece in the Wall Street Journal. He expressed support for lowering interest rates, arguing that's a more effective way to support families and businesses.
The Fed balance sheet peaked at $9 trillion in 2022. Treasury Secretary Scott Bessent has similarly lambasted the enormous size of the Fed's balance sheet, arguing it exceeded its mandate to ensure stable prices and sturdy employment.
"I think the most likely scenario is in fact one where he makes bigger changes in terms of reducing banking regulation and reducing the size of the Fed’s balance sheet, while the setting of interest rates remains fairly similar to how it’s been done the last thirty years," Ryan Chahrour, a finance professor at Cornell University, told Quartz.
During a speech at the Hoover Institution in April 2025, Warsh pilloried the data-driven methods in which the Fed gauges the economy. The central bank heavily relies on the monthly jobs report and its preferred inflation gauge to keep the U.S. economy humming along at a 2% inflation target rate.
"I do not find the current Fed policy of ‘data dependence’ of much real value," Warsh said. "We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts... is evidence of false precision and analytic complacency."
Charlie Ripley, senior investment strategist for Allianz Investment Management, said in emailed comments that a risk for higher inflation exists if Warsh attempts to negotiate further rate cuts with the 12-member Federal Open Market Committee.
The Fed paused its rate-cutting spree last week following three cuts in a row. Most investors and market analysts are pricing in two more rate cuts by the end of the year. It is possible that Warsh attempts to jam through lower interest rates in the FOMC, but it would put him in an awkward position.
"It could be very hard for Warsh to convince the FOMC to go along with a big interest rate cut," Chahrour said. "If he does push for lower rates right away, it will be interesting to see whether we could have a situation where the Chair is in the voting minority regularly in the coming years."
What's more possible for Warsh, a Fed veteran said, is imitating Trump without carrying out his demand for steep interest rate cuts. With Fed Chair Jerome Powell's term up in May, it will fall on Warsh to balance Trump's drastic ideas with the Fed's responsibility to keep its independence.
"More plausible than a revolutionary Fed is a chair who communicates differently and echoes Trump’s views on the economy without implementing his most radical ideas," said Roger Ferguson, a former Fed governor who is now a fellow at the Council on Foreign Relations, in a blog post.
