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A leading contender to take over from Jay Powell as the next Federal Reserve chair has criticized the US central bank for making “systematic errors” and failing to rein in the highest inflation rates in decades.
Kevin Warsh, a former Fed governor and close associate of President Donald Trump, blamed the central bank for behaving more like a broad government agency than a focused central bank, which he believes has hindered its ability to maintain inflation at the targeted 2 per cent.
“Since the financial crisis of 2008, the central bank’s dominance has become a defining characteristic of American governance,” Warsh stated at a Group of 30 event in Washington.
He also criticized the Fed’s $7 trillion balance sheet for enabling excessive government spending, leading the country’s fiscal position down a risky path.
Warsh’s comments come amidst escalating tensions between the Fed and the president, with Trump recently expressing his impatience with Powell’s leadership. However, Trump later clarified that he had no plans to remove Powell from his position, easing concerns in global markets.
Warsh, who was critical of central bank policies last year, highlighted his concerns about the Fed’s involvement in non-monetary issues such as climate change and social inclusion.
As Powell’s current term ends in 2026, discussions have begun about potential successors, with Warsh and National Economic Council head Kevin Hassett emerging as top contenders.
Recent challenges to the Fed’s independence, including Trump’s pressure to lower interest rates and claims of authority to dismiss the Fed chair, have raised concerns about the central bank’s autonomy, leading to market fluctuations.
Warsh emphasized the importance of the Fed’s operational independence in setting interest rates without political interference, while also advocating for accountability in cases of poor monetary outcomes.