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Warsh Calls for Sweeping Fed Overhaul

  //business-finance.news-articles.net/content/2026/01/30/warsh-calls-for-sweeping-fed-overhaul.html
  Published in Business and Finance on Friday, January 30th 2026 at 16:06 GMT by Seeking Alpha
      Locales: Washington, D.C., New York, Maryland, UNITED STATES

Washington D.C. - January 30th, 2026 - Former Federal Reserve Board Governor Kevin Warsh is intensifying calls for a sweeping overhaul of the Federal Reserve, arguing that merely adjusting interest rates is insufficient to address the long-term challenges facing the U.S. economy. In a series of recent interviews and public statements, Warsh has outlined a vision for a restructured Fed, one that re-evaluates its core mandate, streamlines its organizational structure, and significantly limits its role in direct financial intervention. These proposals, while likely to face considerable opposition, are gaining traction amidst increasing public and political scrutiny of the Fed's performance, particularly in light of the turbulent economic conditions following the COVID-19 pandemic and the subsequent surge in inflation.

Warsh's critique centers on the belief that the Fed has overstepped its bounds, blurring the crucial line between monetary and fiscal policy. The unprecedented interventions in credit markets during the pandemic, designed to stave off a complete economic collapse, have raised concerns about the creation of moral hazard - the incentive for financial institutions to take excessive risks knowing they will be bailed out - and the potential for future asset bubbles. Many economists now agree that the sheer scale of quantitative easing and near-zero interest rates, while initially necessary, contributed to the inflationary pressures experienced in 2024 and 2025.

"We need to have a serious conversation about the fundamental structure of the Federal Reserve," Warsh stated in a Bloomberg interview earlier this week. "The current setup is simply not equipped to navigate the complex economic realities of the 21st century. The Fed's mandate is too broad, its organization is opaque, and its involvement in financial stability has become overly intrusive."

A Focused Mandate: Prioritizing Price Stability

At the heart of Warsh's proposals lies a re-evaluation of the Fed's dual mandate - maintaining price stability and maximizing employment. He argues that these two goals are often at odds with each other, creating a policy dilemma that prevents the Fed from effectively pursuing either. A singular focus on price stability, he contends, would provide clearer guidance for monetary policy and foster long-term economic growth. Critics of the dual mandate have long pointed to instances where the Fed appeared to prioritize employment over controlling inflation, leading to periods of economic instability.

This shift would not be without its challenges. Opponents argue that prioritizing price stability alone could lead to higher unemployment rates, particularly in vulnerable communities. However, Warsh advocates for a rules-based approach to monetary policy, ensuring transparency and predictability, and minimizing discretionary interventions that can exacerbate economic cycles.

Organizational Reform: Enhancing Transparency and Accountability

Warsh also calls for significant reforms to the Fed's organizational structure. He believes that the current system lacks sufficient transparency and accountability, making it difficult for the public and Congress to oversee the central bank's actions. Proposals include strengthening the independence of the Office of Inspector General, increasing the frequency and detail of public reporting, and clarifying the roles and responsibilities of the various committees and divisions within the Fed.

Some experts suggest implementing a more formalized congressional oversight committee with greater investigative powers, similar to those used for other government agencies. The goal is to ensure that the Fed operates with greater openness and is held accountable for its decisions.

Curbing Financial Stability Interventions: Reducing Moral Hazard

Perhaps the most controversial aspect of Warsh's proposals is his call to limit the Fed's role in financial stability. While acknowledging the need for a lender of last resort during times of crisis, he argues that the Fed's recent interventions in credit markets have gone too far, creating a system where financial institutions rely on government support rather than managing risk effectively.

He proposes a clearer delineation of responsibilities, with the Fed focusing solely on monetary policy and leaving the regulation and supervision of financial institutions to other agencies, such as the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC). This, he believes, would reduce moral hazard and promote greater financial discipline.

The debate surrounding these proposals is likely to intensify in the coming months, as policymakers grapple with the challenges of a rapidly evolving economic landscape. While the path forward remains uncertain, one thing is clear: the future of the Federal Reserve is under intense scrutiny, and fundamental change may be on the horizon.