Kevin Warshs first challenge as Fed Chair is to fight inflation while keeping Trump happy
Ben Bernanke’s Fed pulled off a miracle during the financial crisis of 2008 and 2009.What might Kevin Warsh be forced to pull out of his hat as the central bank’s new boss?On one level, those perilous years dwarfed any crisis that’s in the foreseeable future for the Federal Reserve.
To address it, Bernanke with the help of others (then-NY Fed chief Tim Geithner and later Obama Treasury secretary among the most prominent) deployed drastic moves that remain controversial today: slashing rates to zero, injecting massive liquidity into an overextended banking system, bailing out AIG while giving the cold shoulder to Lehman Brothers.We can debate Bernanke’s methods and their success all day.Did he rescue some banks that should have gone belly up because, hey, that’s how free markets work? Or was his real mistake consigning Lehman to the dustbin of history? Did his money-printing spree sow the seeds for eventual rampant inflation and create a bubble in financial assets?What is less debatable is that Bernanke had a mandate for what he did: Save us from a second Great Depression — and do whatever it takes to make it happen.
His “Quantitative Easing” — printing money to protect the banking system from a 1930s-style collapse — was among the unconventional results.As he begins his term as Fed chairman this week, Warsh finds himself in a starkly different world.Where Bernanke printed money for years, Warsh has no consensus to even cut short-term interest rates as President Trump, who appointed him, is now demanding.Meanwhile, the Fed’s policy board that sets interest rates — the powerful Open Market Committee — is no longer a monolith of consensus.
Jerome Powell, the man he’s replacing and a Trump antagonist, will continue to vote on interest rates as a governor, as is his right even if it defies custom.Powell says he’s going nowhere until the inquiry into his Senate testimony about the cost of the Fed’s new headquarters — a probe that ...