Former Federal Reserve Governor Walsh harshly criticizes the Federal Reserve, hinting at a possible run for the chair position

According to the Zhitong Finance APP, as the independence of the Federal Reserve continues to be questioned, former Federal Reserve Governor Kevin Warsh, widely regarded as one of the most likely candidates to replace current Chairman Jerome Powell in the mind of President Trump, has publicly criticized the Fed's policy path, signaling a strong possibility that he may compete for the highest position at the Federal Reserve and lead the direction of monetary policy.

At a meeting held on Friday afternoon, Warsh bluntly pointed out that the current predicament of the Federal Reserve is "largely self-inflicted" and called for a "strategic reboot" to rebuild its credibility.

Warsh emphasized, "In our constitutional republic, the central bank's independence is only accepted by society when it has earned that independence and successfully fulfilled its responsibilities." He noted that the Fed's policy operations have deviated from its core duties and begun to involve "politically controversial" issues such as climate change and social inclusivity, rather than focusing on its "timeless" core responsibilities.

Warsh's remarks come at a time of heightened tension between Trump and current Federal Reserve Chairman Powell. Recently, Trump proposed a broad "liberation day" tariff plan, raising concerns in the market about economic growth. Powell has publicly stated that this trade policy could interfere with the Fed's ability to balance controlling inflation and achieving full employment. This statement has been interpreted by investors as a sign that the Fed may pause interest rate hikes.

Trump subsequently launched a fierce attack on the Fed's decision, suggesting that Powell should "leave as soon as possible." Although he later clarified that he would not fire Powell to calm the market shaken by threats to central bank independence, the matter has drawn widespread attention in Washington. Policymakers, economists, market analysts, and lawmakers have all stepped forward to defend the independence of the Federal Reserve.

Warsh pointed out that the current $6.7 trillion balance sheet of the Federal Reserve is clear evidence of its "systemic errors in macro policy." He believes that the Fed's massive expansion of its balance sheet has indirectly encouraged fiscal irresponsibility in Congress, as politicians believe the Fed will "pick up the tab," making it easier to approve fiscal spending.

"The credibility of the central bank is the 'currency' that supports the strength of the U.S. economy," Warsh warned, stating that the current Federal Reserve has severely overdrawn this valuable resource.

Since leaving the Federal Reserve in 2011 due to disagreement with quantitative easing policies, Warsh has been a critic of monetary easing policies. He further pointed out that the Fed relies too heavily on lagging data, frequently issuing forecasts that often deviate significantly, creating a "false sense of precision" in the market, and overly relying on "forward guidance" to shape market expectations.

He emphasized that the Federal Reserve needs to return to its core responsibilities: maintaining price stability and achieving maximum employment, rather than chasing short-term hot topics. "The governance goal is to make the central bank adapt to the democratic system, rather than making the democratic system adapt to the central bank."