Incoming Federal Reserve Chair Kevin Warsh's talk about "regime change" at the central bank has generated speculation about everything from interest rates to major personnel changes to fundamental alterations in the way it operates and communicates.
But what that eventually might look like is subtler though perhaps more consequential – a rethink of how the Fed manages the financial plumbing in the...
The debate over the Fed's balance sheet reflects deeper tensions about the central bank's role in financial markets and the economy. Warsh's proposals for a smaller balance sheet and clearer rules challenge the post-2008 paradigm of aggressive Fed intervention. The strongest version of this narrative is that the Fed's expanded balance sheet has distorted markets, creating dependency and moral hazard, and that a return to pre-crisis norms would restore discipline. However, this framing risks over...