Fynsa
The possible appointment of Kevin Warsh as the next chair of the Federal Reserve raises once again the question: what makes a "good" Fed chair at this point in the economic cycle?
Warsh was an unknown name to me. He was a member of the Federal Reserve Board of Governors between 2006 and 2011, played an active role in managing the global financial crisis of 2008, and has inside knowledge of both the mechanics of the central bank and its relationship with the markets. In other words, he is someone who understands that the Fed's main function is credibility.
In that sense, his profile combines openness to growth and concern for stability. In various public statements, Warsh has suggested that increased productivity—particularly associated with advances in artificial intelligence—could enable a more dynamic economy without generating inflationary pressures. The idea takes me back to the Greenspan era, when the Fed allowed the economy to grow strongly without aggressively raising rates.
The argument is appealing and seems entirely logical, but productivity does not appear overnight, and in the short term, major technological changes such as the one we are experiencing are accompanied by more investment, greater demand, and temporary tensions, for example, in the labor market. Therefore, the Fed may give itself more time if it perceives that growth is not inflationary.
Where Warsh seems to be most consistent—and most firm—is in his view of the Federal Reserve's balance sheet. He has been critical of its size after years of monetary expansion and has defended the idea that a healthy monetary policy is defined not only by the level of interest rates, but also by discipline in the use of the balance sheet. This opens up the possibility of a Fed that could be more flexible on the benchmark rate but less accommodating in withdrawing liquidity.
For the markets, this combination is not insignificant. Slightly lower rates ease the cost of credit in the short term, but a balance sheet that continues to adjust maintains some pressure on long-term rates, reinforcing our stance of controlled duration.
Does this make Warsh a "good" Fed chair? Probably yes, if "good" is understood as someone who prioritizes consistency, predictability, and careful management of expectations. He may not necessarily be the chair who promises cheap money indefinitely, but he is one who seems aware that the greatest risk to the economy is not a specific rate, but losing the anchor of credibility.
If approved by the Senate, Warsh will face a complex scenario characterized by high levels of debt, profound technological transformations, and fiscal tensions.
