What Will the Fed Become Under Chair Kevin Warsh? + Greenspan's Legacy

In this episode of The Spillover, host Rebecca Patterson and former Federal Reserve Vice Chair Roger W. Ferguson Jr. reflect on the legacy of recently deceased former Fed Chair Alan Greenspan, and examine what may lie ahead for the Fed under its new chair Kevin Warsh.

Hosts:

Rebecca Patterson, Senior Fellow, Council on Foreign Relations (CFR)

Guest:

Roger W. Ferguson Jr., Steven A. Tananbaum Distinguished Fellow for International Economics, Council on Foreign Relations (CFR); Former Federal Reserve Vice Chairman (1999–2006)

Description:

On this episode of The Spillover, cohost Rebecca Patterson speaks with CFR Distinguished Fellow for International Economics Roger Ferguson about Kevin Warsh's first FOMC meeting as Chair of the Federal Reserve, which played out largely as predicted.

To bring in fresh perspectives, Warsh has created five task forces. They cover communication, the inflation mandate, productivity and jobs, data collection, and a balance sheet framework. Well-led task forces have historically moved the Fed forward, but progress will likely be uneven and slower than hoped. As Roger Ferguson notes, “This is the kind of thing where you want to measure twice, cut once. Once you make the change, you're gonna have to live with it for a period of time.”

Current conditions point to a rate hike rather than an ease. Core inflation appears stuck above three percent, energy-driven price pressures from the Iran war remain unresolved, while labor market and financial conditions are resilient.

The Fed works with blunt tools and within limited frameworks. Its single national interest rate cannot target individual sectors like housing or specific prices, and its goal remains controlling inflation rather than propping up housing, or equity prices. The Fed also never established a clear framework for when and how to use its balance sheet as a monetary or financial-stability tool, or how quickly to unwind quantitative easing.

AI is currently acting as an inflationary force, not a disinflationary one. It is driving a surge in capital expenditures that should push market rates somewhat higher to balance increased demand for capital.

Patterson and Ferguson discuss the life of Alan Greenspan—including his daily engagement with the U.S. economy for over fifty years, his habit of tracking unconventional indicators like railroad car loadings, and the fact that he was more often right than wrong on major issues. As Ferguson notes, Greenspan was part of a group of economic policymakers in the second half of the 20th century that helped the U.S. economy grow globally, overcoming the Soviet Union.

Mentioned on the Episode:

Sebastian Mallaby, “Alan Greenspan Understood Power and Was Not Afraid to Wield It,” The Washington Post

“Federal Reserve Issues FOMC Statement,” Board of Governors of the Federal Reserve

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The Spillover is a production of the Council on Foreign Relations. The opinions expressed on the show are solely those of the hosts and guests, not of the Council, which takes no institutional positions on matters of policy.