The US Federal Reserve is in need of reform: Is Trump’s appointee Kevin Warsh up to the challenge?

Kevin Warsh’s nomination to succeed Jerome Powell as US Federal Reserve chair has triggered a predictable frenzy of speculation centred on a single, narrow question: How hard will he push for interest-rate cuts? While such conjecture may be entertaining, it misses the forest for the trees. To focus solely on rate cuts is to misunderstand the Fed’s situation and the scale of the challenge awaiting its next leader.Warsh inherits an institution that, by any historical measure, is deeply fractured internally and lacks credibility externally.

One need not look far for evidence. The minutes of the most recent policy meeting read like a thesaurus, with a long list of qualifiers —“a few,” “some,” “several,” “a number,” “many” and “the vast majority”—signalling an unusually wide dispersion of views within the policy-setting Federal Open Market Committee (FOMC).

This internal friction reflects a complex American economic landscape, in which both components of the Fed’s ‘dual mandate,’ price stability and maximum employment, are under pressure and FOMC members harbour differing sensitivities to them. It also reflects a certain defensiveness, triggered by US President Donald Trump’s attacks on America’s central bank, which have escalated during his second term.Moreover, Fed policymakers are aware of enduring criticism over their handling of the 2021 inflation surge: by treating it as ‘transitory’ for too long, they inadvertently contributed to the current affordability crisis.

The Fed has lately been receiving some of its lowest-ever scores on trust surveys.Under these conditions, any incoming Fed chair would need time to establish the chair’s authority, build consensus and restore the institution’s credibility and standing. Having