Frederic Mishkin on his expectations for Fed Chairman Kevin Warsh

Summary

Former Fed Governor Frederic Mishkin offers his assessment of Kevin Warsh as potential Fed Chair, praising his commitment to Fed independence and inflation control. He discusses the operational tension between shrinking the balance sheet and maintaining rate control, and advocates for a reformed forward guidance that communicates the Fed’s reaction function without creating excessive volatility. No specific trade recommendations are made.

• Mishkin sees Warsh’s reaffirmation of Fed independence and price stability focus as a bulwark against political pressure to lower rates.
• He argues that the Fed lost control of rates in 2019 when reserves became too scarce, implying limits to further balance sheet reduction.
• He advocates for forward guidance that tells markets how the Fed will react to data, enabling long-term rates to adjust ahead of FOMC meetings.
• Mishkin warns that eliminating all forward guidance would increase market volatility even in normal times.
• He suggests the Fed should avoid taking on significant interest rate risk under normal circumstances.
• The discussion remains a macro policy analysis without any named tradable securities, sectors, or commodities.