President Trump hit a bull’s eye by selecting Kevin Warsh as the next chairman of the Federal Reserve Board.
Unlike the failed tenure of Jerome PowellWarsh is not political, and he is not an inflation expert. He has stated many times, “I reject the discredited Phillips Curve idea that growth causes inflation.” He believes we can return to a prosperous era of low inflation and high growth, as we saw under Paul Volcker in the 1980s and Alan Greenspan in the 1990s.
Powell never understood that. He believed that growth causes inflation. What we got instead was an almost Fed-induced stock market crash and slow growth in 2018, followed by four years of stagflation in the Biden era, with stagnant real wages AND high prices.
Powell is a lame duck, and a wounded duck, he should resign immediately. He won’t do that, so we still have four months before the regime changes and his monetary and interest rate mismanagement, which gave us 9% inflation, will be abandoned.
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This means that Warsh must be ready to reverse the monetary course from day one.
First, I agree with former World Bank President David Malpass that the overarching goal of the Warsh Fed should be to keep the dollar strong and prices stable. Defend the dollar.
It is critical that Warsh “know thy enemy,” or the Fed’s goo will eat him up and spit him out. The Fed’s staff will openly work to undermine Warsh’s main strategy for overcoming inflation.
I’m a little concerned that Trump wants a weak dollar, which Powell has delivered lately. The dollar’s decline against other currencies and gold are trends that could increase prices and threaten the dollar’s status as a world reserve currency. Don’t go there.
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Second, Warsh must take swift action at the Fed. He has promised to cut bureaucracy by 30%. That’s a good start.
The Fed has no more than 3,000 bureaucrats and hundreds of Ph.D. economists, given all the mistakes they have made in recent years. They might as well have created 9% inflation with half as many people.
This is urgent because the Empire is already preparing to strike back.
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Krishna Guha, a former New York Fed official, warned in the Financial Times that if Warsh attempts to implement his “restructuring plan in the spirit of MAGA regime change, it will maximize resistance and opposition from the vast majority of others in the system.”
Kevin Warsh, former Governor of the Federal Reserve, is pictured at the spring meetings of the International Monetary Fund (IMF) and the World Bank at IMF Headquarters in Washington, DC, on Friday, April 25, 2025. President Trump announced on January 30 that he is nominating Warsh to succeed Jerome Powell as Chairman of the Federal Reserve. (Getty)
It is critical that Warsh “know thy enemy,” or the Fed’s goo will eat him up and spit him out. The Fed’s staff will openly work to undermine Warsh’s main strategy for overcoming inflation.
It would also be a good example of fiscal discipline if the Fed would practice what it preaches: fiscal discipline. Let’s not forget that Powell spent nearly $2 billion renovating the Fed’s Taj Mahal-esque building in downtown Washington. Talk about a bad example.
Third, Warsh is absolutely right that adding trillions of dollars to the Fed’s balance sheet, now worth $6.5 trillion, was “the Fed’s biggest mistake in 45 years.” Just 25 years ago, the Fed’s balance sheet contained less than $1 trillion in assets, and last year it reached an all-time high of more than $8 trillion.
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Accelerating the sale of these stranded assets would help suck excess money out of the economy, returning inflation to the 2% target while increasing affordability.
There is an old saying about success in life: “You always want to succeed when you fail.” Warsh now finds himself in that position as he replaces the Powell regime. He can help Trump restore price stability, and if he does, he will go down in history as one of the greatest Fed chairs.
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Finally, adopt an interest-price rule and make it transparent to the world. My preferred price index is a basket of commodities ranging from gold to coal, copper to cotton. If the commodity index starts to rise, there is too much money: increase interest rates. If prices start to drop, lower rates.
Warsh’s best gift to Trump would be the restoration of price stability and the dominance of the dollar. If he succeeds, he will go down in history as one of the greatest Fed chairmen of all time.
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