The most popular candidate for the Federal Reserve Chair criticized the central bank for being too big and too politicized, supporting Trump's pressure on it.

Kevin Warsh, former Federal Reserve governor, seen as President Trump's top choice and potential replacement for current Fed chairman Powell, publicly stated on Friday at the Reagan National Economic Forum in Westlake Village, California that the Fed is too large, too involved in the market, and lacks political immunity. He supports Trump's criticism of the Fed, emphasizing that central banks should not be "spoiled princes." "If the president believes the Fed is not doing well, he should speak up," Warsh pointed out. "Central banks are supposed to provide a 'scapegoat' for politicians, and I see the media always lamenting how politicians are 'too harsh' on the Fed. My response is: 'Grow up, toughen up.'" Warsh's statement comes in a complex background. Just a few days ago, Trump and Powell held their first face-to-face meeting at the White House since Powell's reappointment. Although the details of the meeting were not disclosed, there has been a long-standing disagreement between the two on interest rate issues, with Trump criticizing the Fed for maintaining high rates, believing it hampers the economy and the stock market. On May 22nd, the US Supreme Court reaffirmed the independence of the Fed. Powell's term will end in May 2026, but it is widely believed that he is unlikely to be reappointed under the Trump administration. Warsh has long advocated for tightening monetary policy, opposing the Fed's maintaining a massive balance sheet of about $7 trillion. He bluntly stated: "One reason why fiscal spending has skyrocketed in the past five years is because the Fed is subsidizing this cost." He criticized the Fed for intervening in the market not only during crises but also in times of "relative peace and prosperity" by buying large amounts of government bonds, thereby "disguising the true cost of government spending." Warsh pointed out that the Fed is involved in every corner of the banking market almost "every day," and its size is much larger than necessary, with trillions of dollars in redundancies. While there is still debate in the academic community about whether the Fed's quantitative easing policy after the crisis triggered inflation, Warsh confirmed that the Fed's actions are related to high inflation after the pandemic. He called for the establishment of a clear strategy to gradually reduce the size of the balance sheet: "This change cannot be accomplished overnight, but if the market knows the goal is to build a smaller, less risky balance sheet, and there is a path to follow, market participants can adjust their expectations. The Fed can still maintain its authority, but in a more limited and precise way." In addition to monetary policy, Warsh also questioned whether the Dodd-Frank Act, implemented after the 2008 financial crisis, truly achieved the goal of stabilizing the financial system. He mentioned the event of Silicon Valley Bank collapsing due to a run on the bank in March 2023, pointing out clear gaps in regulatory oversight in managing interest rate risk. "Perhaps we should rethink whether all this Dodd-Frank legislation has not worked... we may have created less competition, not more."