Former Federal Reserve Director Kevin Warsh recently criticized the monetary policy led by Chairman Powell. It is rumored that he is one of the candidates recognized by the Trump team as the next Federal Reserve Chairman.
He stated in the latest interview that even though asset prices are skyrocketing, the Federal Reserve is still "stimulating the economy.".
Walsh served as the White House Economic Policy Advisor during Bush's tenure and served as a Federal Reserve Director from 2006 to 2011.
"I think their situation will be even more difficult... much more difficult than they imagine," he said.
Specifically, Walsh provided the harshest criticism of the Federal Reserve's "dot matrix". As is well known, the dot matrix chart lists the interest rate path that each Federal Reserve official perceives. He pointed out that "predetermined" interest rate paths can have serious counterproductive effects.
"Although this is effective for financial markets," he said, "hardworking Americans will be hurt."
He believes that the current benchmark interest rate, between 5.25% and 5.5%, is a "restrictive" level, which means it is high enough to slow down demand and inflation. But Walsh said that the prospect of interest rate cuts implied by the Federal Reserve's chart is weakening the restrictive effect of high interest rates.
"So I believe that most areas of the US economy are not as restrictive as they claim," he added.
Powell's term as Federal Reserve Chairman will end in 2026. Previously, sources revealed that Trump's economic advisory team submitted a list of potential candidates for the next Federal Reserve Chairman to the former US President. And Walsh is on this list. In addition to him, the list also includes Kevin Hassett (who served as Chairman of the White House Council of Economic Advisers during Trump's tenure) and Arthur Laffer (who served as White House Economic Advisor during Reagan's time).
However, the source stated at the time that Trump has not yet made a commitment to any candidate and is expected to cast a wide net in the coming months, considering who to replace the current Federal Reserve Chairman Powell.
In addition to the above comments, Walsh also hinted that Treasury Secretary Janet Yellen is attempting to suppress long-term bond yields by issuing more short-term notes rather than long-term securities. He said, "This will be valid for a period of time, but ultimately this debt must be repaid."
Finally, Walsh also talked about foreign policy, stating that President Biden's efforts to contain other countries have not been effective.
"When the United States is no longer a stable force in the world, it will have a negative impact on the United States," he added.