PALO ALTO, California — You might expect Kevin Warsh’s colleagues at Stanford University’s Hoover Institution to be elated for him as he prepares to take over as chair of the Federal Reserve. Some of them are feeling a different sentiment: pity. “Kevin Warsh is the dog who caught the car,” said John Cochrane, a senior fellow at Hoover, Warsh’s intellectual home and soon-to-be-former employer. “I say that with great affection and sympathy.” Cochrane helps organize the institution’s annual monetary conference, where this year, right-of-center economists, former Fed staffers and others spent the day dissecting potential threats to the central bank’s political independence — a sobering reminder of all the ways Warsh’s new job might stop being fun pretty quickly. Is the Fed insulated from political pressures? Will the federal debt get so large that the central bank eventually has no choice but to set interest rates in ways that minimize the government’s interest burden? Did the recent spike in inflation result in a dent to the central bank's credibility? These ideas, which a younger Warsh wrestled with as risks to the Fed 16 years ago, are all now highly pressing matters that he will face in the job he has wanted for many years. Many of these concerns are far fresher than they were when Warsh meditated on them, as inflation and government debt and political threats to the central bank have ballooned all at once. And so I found, as Warsh ascends to the Fed’s top job, that the free-market scholars who make up the Hoover community are watching the task he faces with real anxiety. And it goes beyond President Donald Trump. Cochrane said Trump’s threats to the central bank put the Fed’s autonomy “back on the radar screen,” but “it’s been simmering.” In fact, he sees the growing U.S. debt as the bigger danger to the Fed’s long-term independence than Trump, whose attacks “seem to be, if anything, counterproductive” for the president. After all, U.S. central bankers have continued to have flexibility to make their own policy decisions, but the debt trajectory of the U.S. is on a steep climb, with no sign that the government plans to change course. It’s true that, so far, the president’s legal threats against the Fed have worked against him. Outgoing Fed chief Jerome Powell is staying in his board seat as a “low-profile” regular governor after his chairmanship ends May… [TheTopNews] Read More.
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