Warsh might yet be a good Fed chairman 

He must stay clear on the object ives of policy and sens ible on how the cent ral bank should con duct itself 

Financial Times Europe 9 Sep 2026 Mar tin Wolf Eco nom ics mar tin.wolf@ft.com 

Is it pos sible that Kevin Warsh will prove to be the cent ral banker the US and the world needs? After his speech at the Jack son Hole Sym posium, I am less pess im istic about the pro spect than before. Diffi  cult choices — diffi  cult intel lec tu ally and polit ic ally — lie ahead. But his speech “In our time” was both clear and sens ible — clear on the object ives of policy and sens ible on how the Fed should con duct itself. This is cheer ing. It could also prove of great future import ance. As I have pre vi ously noted, Warsh has been a con fus ing fig ure. In the past he has presen ted him self as an infla tion hawk, not ably with his wildly pre ma ture con cern over the dangers, not ably to infla tion, of the mon et ary policies adop ted after the global fin an cial crisis. Indeed, he already expressed this con cern in March 2010. More recently, however, prior to his appoint ment as chair man of the Fed eral Reserve by Don ald Trump, he seemed to be bend ing to polit ical pres sure to be optim istic about pro spects for pro ductiv ity and infla tion. 

The fear was that he was a polit ical weather vane, whose eco nom ics depended on who was in power. Yet since Warsh became chair man, things have been look ing up a little. True, as my col league Chris Giles noted on August 11, Warsh has largely failed to engage sub stant ively on the state of the US eco nomy. Yet the Fed under him has also announced five task forces to assess its com mu nic a tions, bal ance-sheet man age ment, the data it uses, the pro spects for pro ductiv ity and its policy frame works, all under reput able fig ures. My hope is that this was a clever way to gain cred ib il ity for battles ahead. Now comes this Jack son Hole speech. It had three main sec tions: a rumin a tion on the implic a tions of AI for the eco nomy; a cri tique of for ward guid ance; and a restate ment of the Fed’s core object ives. All are import ant.

The need to assess the implic a tions of AI for the eco nomy and so the con duct of mon et ary policy is clearly vital. The big need on this is to under stand the scale and nature of the uncer tainty. Uncer tainty is also self-evid ently the biggest prob lem with for ward guid ance. It is not that we are uncer tain only about how mon et ary policy will affect the eco nomy (although we are). It goes far deeper than that. As John Kay and Mervyn King argued in their splen did book, Rad ical Uncer tainty, there is so much we don’t know. Nobody can look at our fin an cial and mon et ary sys tems, domestic and inter na tional polit ics, cli mate change, the Covid-19 pan demic’s sud den onset and tech no lo gical changes over the past few dec ades without real ising just how much uncer tainty there is. For ward guid ance is fine if noth ing changes very much. But then it does — again and again and again. As Warsh said, for ward guid ance was intro duced as a reg u lar prac tice dur ing the fin an cial crisis. This was jus ti fi able when there was a single over whelm ing con cern that was, plaus ibly, going to last for a long time, as indeed it did. 

Yet it is worth not ing how use less a form of “for ward guid ance” had been just before the crisis, when accur acy was des per ately needed. The then Fed chair man, Ben Bernanke, a highly qual i fied eco nom ist, stated in March 2007 that “At this junc ture . . . the impact on the broader eco nomy and fin an cial mar kets of the prob lems in the subprime mar ket seems likely to be con tained.” The state ment seemed reas on able at the time. But it was dead wrong. Another area in which I believe con ven tional eco nom ics has been proved mis lead ing is, as Warsh indic ated in his speech, in decid ing that the quant ity of money is irrel ev ant. The post-pan demic rise in the price level, after the huge mon et ary expan sion of 2000, is, as I have pre vi ously argued, an indic a tion that this view is quite mis taken.

 The point then is the per vas ive uncer tainty about the eco nomy. An eco nomy is not a machine, to be manip u lated by wise tech no crats in accord ance with pre dict able rules. In addi tion, for ward guid ance cre ates a “hall-of-mir rors”: the cent ral bank sees in mar kets not inde pend ent judg ments but an image of its own state ments, as par ti cipants shift from invest ing in their own judg ment to fol low ing the Fed’s fore casts of what it will do. Even provid ing a reac tion func tion goes bey ond what poli cy makers are able to do, above all when big shocks hit. 

This is not a recipe for inactiv ity. On the con trary, as Warsh notes, there are a few key prin ciples. These include hav ing accur ate and up-to-date data; aware ness that low infla tion is a neces sary con di tion for low unem ploy ment; reli ance on shortterm interest rates as the main policy tool; and, above all, as he says, that “the Fed’s price-sta bil ity object ive of 2 per cent . . . is a firm, fixed tar get.” Deliv ery on the tar get is vital. The best way to do this is to show why the cent ral bank judges its interest rate policy to be the right one to deliver its object ive, given how it under stands the eco nomy at the time. This is not what Trump believes. On Septem ber 4 2026, on Truth Social, the US pres id ent ordered: “LOWER THE RATE [of interest] OR I’LL STOP TRAD ING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.” There is no need to ana lyse the eco nomic (il)logic here. The main point is his belief that “A STRONG COUNTRY MEANS A LOWER INTEREST RATE - IT’S A BETTER CREDIT . . . Very simple!” 

Infla tion is, in his mind, alto gether irrel ev ant. That must not be true for Warsh. He must deliver on his tar get, des pite high fiscal defi cits and debt, struc tur ally higher real and nom inal interest rates than in the 2010s, and tech no lo gical change. In so doing, he will need to dis play as much clar ity about the eco nomy as he can. But the biggest require ment is cour age: he must strive to do the Fed’s duty and so deliver low infla tion, whatever the polit ical pres sures upon him.