The Meaning of the Warsh Task Forces

Federal Reserve Chair Kevin Warsh didn’t make much news in his testimony to the House on Tuesday, and that’s truth in advertising. The real action at the Fed these days concerns the task forces Mr. Warsh is creating to reform the central bank, and that story isn’t getting the media attention it deserves.

The Fed late last week announced the leadership for the five panels Mr. Warsh has formed, each with a specific reform remit. It’s a heavyweight list. Mervyn King, former Governor of the Bank of England and one of the better central bankers of his era, is one of three co-leaders of the panel on Fed communications.

Harvard’s Greg Mankiw, who led George W. Bush’s Council of Economic Advisers, is one of three on the panel studying how the Fed understands and responds to inflation.

Importantly, Mr. Warsh has also turned to the private sector. Former Walmart CEO Doug McMillon has agreed to serve on the panel on economic-data quality. Mr. McMillon ran one of the world’s largest businesses that relies on real-time data on consumer purchases, supply chains, prices and labor. Maybe he can help the Fed be less dependent on government data that looks in the rear-view mirror.

Venture capitalist Marc Andreessen and Microsoft executive Asha Sharma will serve on the panel on productivity and the labor market. They’ll no doubt have advice on the critical question of whether an AI productivity boom is really taking hold.

The panel choices are a credit to Mr. Warsh’s ability to recruit high-powered talent. But they also show the Fed Chair isn’t looking for a group to rubber stamp his views. That’s especially notable on the panel concerning the Fed’s bloated balance sheet.

It’s no secret that Mr. Warsh wants to shrink the Fed’s footprint in the economy. But the three experts Mr. Warsh has chosen to lead the panel suggest he wants serious debate about the pros and cons of doing so. Raghuram Rajan, former governor of India’s central bank and a University of Chicago professor, has written about the practical challenges associated with shrinking a centralbank balance sheet. Jeremy Stein and Karen Dynan, both Harvard professors, have written more favorably about the Fed’s large-balancesheet policy. All of them bring nuanced views to the debate.

We’re told each task force will be asked to produce a succinct report for Mr. Warsh that will be released to the public and become the basis for public debate. The new Fed Chair seems to appreciate that he has to persuade a diverse audience, inside and outside the central bank, to make his reforms durable. The panels are a way to build credibility and something at least close to a consensus.

The central-banking fraternity is still in denial about the crisis of credibility that has rocked the Fed since the turn of the century. The big problem isn’t President Trump, as counterproductive as his broadsides on monetary policy may be.

It’s that voters see that the Fed missed the worst inflation surge in 40 years after the pandemic and still hasn’t stabilized prices. Like all Fed Chairmen, Mr. Warsh will be judged on whether he accomplishes the fundamental duty of regaining and maintaining stable prices. But his task forces are the best opportunity the Fed has had in years to reassure the public that it’s learning from its mistakes.

His heavyweight choices signal a serious debate on the future of the Fed.