MNI POLICY: Regional Fed Banks Could Face Revamp Under Warsh

The Federal Reserve system could face wide ranging reforms under a possible leadership of former governor Kevin Warsh, including a repurposing of its 12 regional reserve banks to focus on specific areas of research in which they might have a competitive advantage, people familiar with his thinking told MNI.

Warsh, who was former Fed Chair Ben Bernanke's right-hand man on financial markets during the Global Financial Crisis of 2008 and a top contender to succeed Jerome Powell as Fed chairman when his term expires in May 2026, would take several steps to curb what he sees as central bank mission creep. 

"The Fed has acted more as a general-purpose agency of government than a narrow central bank. Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability," he said in a April speech to the G30 hosted at the IMF.

Importantly, he would seek to reduce the amount of duplicative work done at the 12 regional banks, which Warsh thinks would be more useful as distinct centers of excellence focused on specific issues that are key to the Fed's function -- inflation, employment, financial stability, payments and more. 

Rather than trying to replicate the type of broad macroeconomic research done in Washington at the board of governors, this designation of new primary roles for each Reserve Bank would reduce inefficiencies and redundant work. 

Looking across the system, Warsh wants to ensure policymakers are getting advice from different schools of thought rather than adhering to particular theories or economic models. 

A Warsh Fed would also likely take steps to move away from the Beige Book report as it is currently compiled, because it is too anecdotal and inexact to be a useful guidepost for policy.

MNI has previously reported Warsh would also likely take significant steps on policymaker communications and forward guidance, likely de-emphasizing or perhaps even ditching the Summary of Economic Projections or "dot plot" that markets closely follow. (See MNI POLICY: Warsh Could Reshape Fed On Rates, Communication) "Once policymakers reveal their economic forecast, they can become prisoners of their own words," he said in the April lecture.

These efforts at change could lead to some turnover at the Fed, though the people familiar with Warsh's thinking expect a gradual process as the effort is met with a mix of enthusiasm and resistance from staff. Much of the shift in personnel might come through attrition as staffers who are not on board with the new changes choose to leave, the people said.

The former governor has been critical of the Fed for lowering rates last year, when he believes the economy did not really need it, and then pivoting to a prolonged pause this year even though Warsh sees little evidence President Donald Trump's tariff policies are generating inflation. He recently argued in television interviews that "interest rates need to be lower" but has not specified when or how much he might cut them.

Trump has repeatedly assailed Powell for not lowering interest rates since he came into office. He is widely expected to replace Powell when his term ends.

Warsh is seen as a top contender for the job, as is Trump adviser Kevin Hassett. Other possible candidates include Treasury Secretary Scott Bessent and current Fed governors Chris Waller and Miki Bowman.