The most popular candidate for Federal Reserve Chair criticizes the central bank for being too large and too politicized, supporting Trump's pressure on it

According to the Zhitong Finance APP, Kevin Warsh, a former Federal Reserve governor viewed as President Trump's preferred choice to potentially replace current Federal Reserve Chairman Jerome Powell, publicly stated on Friday at the "Reagan National Economic Forum" in Simi Valley, California, that the Federal Reserve is too large, too involved in the market, and lacks political immunity. He supports Trump's criticism of the Federal Reserve's authority, emphasizing that the central bank should not be "a pampered prince."

"If the president thinks the Federal Reserve is doing a bad job, he should speak out," Warsh pointed out. "The central bank was originally meant to give politicians a 'scapegoat' to blame. I see the media constantly lamenting that politicians are 'too harsh' on the Federal Reserve, and my response is: 'Grow up a little, be stronger.'"

Warsh's remarks come against a complex backdrop. Just days earlier, Trump and Powell held their first face-to-face meeting at the White House since Trump took office again. Although the content of their discussions has not been publicly disclosed, the two have long-standing disagreements on interest rates, with Trump consistently criticizing the Federal Reserve for maintaining high rates, believing it suppresses the economy and the stock market.

On May 22, the U.S. Supreme Court ruled to reaffirm the Federal Reserve's institutional independence. Powell's term will end in May 2026, but there is widespread skepticism about his chances of reappointment under a Trump administration.

Warsh has long advocated for tightening monetary policy and opposes the Federal Reserve's maintenance of a massive balance sheet of about $7 trillion. He stated, "One reason fiscal spending has surged over the past five years is that the Federal Reserve has been subsidizing this cost."

He criticized the Federal Reserve for intervening in the market not only during times of crisis but also for buying large amounts of government bonds during "relatively peaceful and prosperous" times, thereby "masking the true cost of government spending."

Warsh pointed out that the Federal Reserve is currently "involved in every corner of the banking market almost every day," and that "its scale is far larger than necessary, with redundancies measured in trillions (of dollars)."

While there is still debate in academia about whether the Federal Reserve's quantitative easing (QE) policies after the crisis have triggered inflation, Warsh clearly believes that the Federal Reserve's actions are linked to the high inflation seen post-pandemic. He called for a clear strategy to gradually reduce the size of the balance sheet: "This change cannot happen overnight, but if the market knows the goal is to build a smaller, less risky balance sheet and there is a path to follow, then market participants can adjust their expectations. The Federal Reserve can still maintain its authority, but in a more limited and precise manner."

In addition to monetary policy, Warsh also questioned whether the Dodd-Frank Act, enacted after the 2008 financial crisis, has truly achieved its goal of stabilizing the financial system. He mentioned the March 2023 incident where Silicon Valley Bank faced a run and collapsed in a short period, pointing out significant gaps in regulatory oversight and interest rate risk management. "Perhaps we should reflect on the fact that all this Dodd-Frank legislation hasn't worked... We may have created less competition, rather than more."