kevin warsh

Robin Harding

Kevin Warsh, governor of the Federal Reserve, is to step down at the end of March. It is not an enormous surprise: he has been at the Fed for five years and after the passing of the financial crisis, where he was a leading player in the Fed’s response, it is probably time for new challenges.

A few thoughts:

(1) Mr Warsh had hawkish views on QE2 and his departure will be seen as making the committee more dovish. I’m not sure that’s quite right: Mr Warsh was always a stalwart supporter of chairman Ben Bernanke and I think he helped to keep the committee together.

(2) His departure will leave the Board in Washington light on financial markets expertise and contacts. The Board will also be short of governors with strong Republican credentials which may not help it on Capitol Hill. 

James Politi

Kevin Warsh, a governor at the Federal Reserve, has just delivered a very interesting speech in Atlanta.

His main point is that the Fed could start selling mortgage assets it bought to sustain the housing market during the crisis independently of its moves to raise interest rates, putting him squarely in the camp of inflation hawks on the Federal open market committee. Ben Bernanke, Fed chairman, has suggested that any asset sales should come only after monetary policy tightening underway, but Mr Warsh seems to disagree. “Any sale of assets need not signal that policy rates are soon moving higher. Our policy tools can indeed be used independently. I would note that the Fed successfully communicated and demonstrated its ability to exit from most of its extraordinary liquidity facilities over late 2009 and early 2010, even as it continued its policy of extraordinary accommodation,” he said.

The Fed governor, a former Morgan Stanley investment banker and George W. Bush administration official, also attempted to quash the rising talk that the Fed might actually start buying assets again in response to continued weakness in the housing sector and the sluggish recovery, saying that such a move “should be subject to strict scrutiny”. 

Krishna Guha

Krishna Guha of the Financial Times on Fed Governor Kevin Warsh arguing forcefully for a symmetry of response from the FOMC for credibility reasons