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So I guess the Fed chairman, Jay Powell, is not going off quietly into the night. Today is his last meeting as chairman, but he announced his ungentlemanly decision to stay on as a Fed board member for who knows how long. “I’ve said that I will not leave the board until this investigation is well and truly over with transparency and finality, and I stand by that,” he said. “In terms of when I would leave, I will leave when I think it’s appropriate to do so,” he added. “The things that have happened in the last three months, I think, left me no choice but to stay.” Mr. Powell concluded that “after my term as chair ends on May 15th, I will continue to serve as a governor for a period of time to be determined. I plan to keep a low profile as a governor.”
Mr. Powell’s not the martyr he thinks he is. You can’t have two chief executives.
President Trump’s choice to lead the Fed, Kevin Warsh, was confirmed today by the Senate Banking Committee, by a 13-11 vote. And he undoubtedly will be confirmed by the whole Senate probably some time next week.
Nobody’s going to listen to Mr. Powell. The cost overrun investigation is being run by the Fed’s inspector general, who is independent, and Mr. Powell has nothing to do with it. And by the way, only once before in the 113-year history of the central bank, has another former chairman stayed on as a board member.
This speaks poorly of Mr. Powell. His record as Fed chairman was undistinguished. The Consumer Price Index averaged 3.5 percent per year under Mr. Powell. That was the highest level since the tenure of Paul Volcker, giving Mr. Powell the worst record in more than 40 years. Cumulatively the CPI rose a whopping 32 percent. And as far as the economy, real gross domestic product averaged 2.4 percent at an annual rate. Another unimpressive performance. On top of that, Mr. Powell was also a highly political Fed chairman who embraced President Biden’s radical climate agenda and even more radical DEI.
In an interview today, Treasury Secretary Scott Bessent expressed to me his strong displeasure with Powell by saying “I think it is an insult to Kevin Warsh, Miki Bowman, and Chris Waller to think that these other Republican nominees do not care about the institution of the Fed and that he alone can maintain the integrity of the Fed.”
The good news is that Mr. Warsh will take the helm as chairman and make a number of important changes. Hopefully the Fed’s economic models that are based on the false premise that strong growth leads to higher inflation will be thrown out the window.
Mr. Warsh understands the positives of low tax rates and deregulation in producing a disinflationary impact of faster productivity and lower unit labor costs. Mr. Warsh wants to shrink the Fed’s balance sheet by refocusing the central bank on monetary policy, and leaving fiscal and debt management policies to Mr. Bessent at the Treasury.
The Fed should not be some vast central planning agency. And the cacophony of yapping by various Fed officials will come to an end hopefully, along with something called forward guidance. Mr. Warsh wants the Fed to earn its independence by staying out of politics, and sticking to better control of the money supply, and maintaining a strong and stable dollar. The chairman’s job at the central bank is a very powerful job. So whether Mr. Warsh sees fit to give Mr. Powell a parking spot remains to be seen.
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