Just a few months ago, next to no one in the general public was talking about Kevin Warsh. But today, he takes the podium for his first press conference as Chair of the Federal Reserve. With a nearly guaranteed position for the next fourteen years, until 2040, he is now the figurehead of the most powerful organization in the known universe: the institution with the authority to set interest rates, legally create US Dollars out of thin air, and manipulate the money supply. He is done looking for a job; now he must execute it.
But what is that job, exactly?
Mainstream economists have you believe the Fed’s mandate is to set the ideal interest rate and calculate the optimal money supply, juggling full employment against (price) inflation. These are central planning delusions that Austrian economists have fundamentally debunked for generations. Whether you prefer Mises’s socialist calculation debate or Hayek’s knowledge problem, the conclusion is identical: a handful of technocrats cannot replace the free and unhampered market, nor can they pretend human action doesn’t exist, without society facing the consequences.
To those in the know, the boom-bust cycle is part and parcel of central banking. While the press obsesses over whether the Fed will tweak rates by 25 basis points this week or shift the balance sheet next month, they never quite get to the bigger picture. We’ve seen this story play out over and over.
A CNBC headline today reads like a déjà vu:
Kevin Warsh needs to establish credibility as new Fed chairman.
The establishment comes off as appearing to genuinely believe that corruption and/or incompetence can be solved by simply picking a “better man.” If Jerome Powell struggled to manage a multi-trillion-dollar office renovation, if regional presidents Eric Rosengren and Robert Kaplan resigned after stock trading scandals, and if Lisa Cook was incapable of signing her mortgage documents and may have accidentally committed fraud, there are no consequences other than the mainstream narrative offering a shrug. All the while exists this assumption that the new chairman will succeed where all others have failed.
Meanwhile, a CNN headline asks:
Warsh was appointed to cut rates. Will Trump’s economy stand in the way?
Fed independence has been an issue for over one hundred years. With President Trump unapologetic about lower rates, the narrative that Warsh was appointed specifically to accommodate the White House exposes the theater. Staying out of political scandal is one thing; performing the economically impossible is another.
No matter what Warsh does, there will be a heavy cost to pay. He can raise rates on a nearly $40 trillion national debt, claiming to fight inflation; he can hold steady citing economic uncertainty; or, if all else fails, he can find a reason to lower rates by citing liquidity issues. The wild card is a sudden banking failure, in which case he’ll have the easiest justification to do just about anything, like lower rates and increase the money supply.
Ultimately, the years ahead will mirror the years behind us: endless Fedspeak, moving goalposts, and academic justifications for economic intervention; the difference will only be in the severity and compounded effects. But the new chair brings a fresh opportunity because he might inadvertently show a new generation of young people the fundamental problem of central banking: the problem being that it shouldn’t exist in the first place.
