Kevin Warsh, floated as Trump Fed chief, says Powell is 'goosing' the economy

By Greg Robb

'I think they are in a more difficult position...than they think they are,' former Fed president says

Former Fed Governor Kevin Warsh, who has been touted recently as a possible candidate for the top Fed job in a new Trump administration, criticized the economy under Fed Chair Jerome Powell.

In an interview on CNBC, Warsh said the Fed was "goosing the economy," spurring it to grow "even as asset prices are melting up."

While U.S. allies and adversaries may be impressed by the growth in the stock market and overall U.S. economic growth, "I wouldn't say they are overly impressed by the U.S. economic engine," he said.

"That engine seems like it's being stimulated even at a time of full employment," he said.

Warsh reserved his harshest criticism for the Fed's "dot plot," which lists each Fed official's likely path of interest rates, assuming the economy performs as each expects it to.

"Pre-committing" the path of interest rates "is deeply counterproductive," Warsh said.

"For financial markets, it is productive," he said. But he suggested that hardworking Americans will be hurt.

Warsh said he was puzzled about the Fed's current working theory of inflation.

He noted that one measure of inflation featured by the Fed - service prices excluding housing - is now growing above a 4% rate.

"We haven't heard about that in a while," he said.

"I think they are in a more difficult position than...they think they are," he said.

Warsh said he thought the Fed's benchmark interest rate - between 5.25% and 5.5% - was "restrictive," meaning high enough to slow demand and inflation.

But he said the Fed's dot plot is undermining its rate.

"And so I don't see the restrictiveness in most parts of the economy that they claim," he said.

Warsh suggested Treasury Secretary Janet Yellen was trying to repress long-term bond yields by issuing more short-term bills than longer-term securities.

"That works for a while, but ultimately this debt has to be paid," he said.

Warsh also took a foray into foreign policy, saying President Biden's efforts to deter Russia and China aren't working.

"When the U.S. is no longer a force that's steady in the world, that redounds to negative benefits here in the U.S.," he said.

Asked if he would raise taxes or curb spending to bring down the deficit, he said he would start with cutting spending.

Stocks DJIA were lower in trading on Monday while the yield on the 10-year Treasury note BX:TMUBMUSD10Y rose to 4.251%.

-Greg Robb

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03-25-24 1151ET

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