Staying Power It appears that, if the nominee for the next Federal Reserve chairman is confirmed by the Senate, he will have to roll up his sleeves to achieve some of his monetary policy priorities. Not that Kevin Warsh isn’t up to the task. He served on the Fed’s board of governors for five years, from 2006 to 2011, before returning to academia, and so has first-hand experience with the workings of the board. This is unusual, but not unprecedented; two recent Fed chairmen, Ben Bernanke and Janet Yellen, served as governors, left and returned to lead the Fed. What makes Warsh’s expected confirmation intriguing are his past words and actions regarding the development and conduct of policy, juxtaposed with the Fed’s current balance sheet position. It could make for some interesting dialogue in upcoming meetings, and subsequent statements and press conferences. Here’s some background. First Lap Gov. Warsh was known as an inflation hawk during his years at the Fed, which coincided with the start of, and then proceeding through, the Great Financial Crisis (GFC). He participated in a shift of monetary policy from a restrictive stance to pop the real estate bubble in 2007, hiking fed funds all the way to 5.50% in the process, to a wholly stimulative policy in which the overnight rate dropped to 0.25% in barely over a year. The Fed under Chairman Bernanke initiated novel strategies to prevent financial markets from seizing up. Included were the first large-scale applications of the massive bond-buying scheme known as “quantitative easing” (QE). So, within 24 months of being a Fed governor, Warsh voted on tightening, easing and the purchase of over $1 trillion in government bonds. Along the way, he consented with the Fed’s Balance Sheet Has Some Duration, for Better or Worse By JIM REBER President and CEO, ICBA Securities 6 In Touch
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