Hawkish Fed Governor Quits Amid Inflation Furor

Posted by Adam Sharp - Friday, February 11th, 2011

Kevin Warsh, formerly a top adviser to Bernanke, has resigned from his post as Fed governor. His term would have lasted until 2018.

Warsh had become something of a "soft dissenter", or the Fed's version of an inflation hawk. Like Fischer and Hoenig, maybe, but with less experience and Fed cred.

We probably won't learn why he departed. Was he getting having regrets about about inflationary policies? Seeking a private-sized bonus? Or just sick of the beaurocratic nonsense. Maybe he saw hints of something coming.

We'll never know. The big story is this: Fed criticism is slowly, steadily mounting. Bout time...


Warsh staked out an anti-inflation stance on monetary policy in September 2009, when he published a Wall Street Journal op-ed and gave a speech saying the Fed may need to raise interest rates with “greater force” than it has in the past. In June, he said any decision to expand the $2.3 trillion balance sheet must be subject to "strict scrutiny."

On Nov. 8, he said in an op-ed and speech that the Fed's Treasury buying "poses nontrivial risks" even after he voted to support the stimulus. He hasn’t publicly discussed his views on the purchases since November and backed the policy at the Fed’s subsequent meetings in December and January.

The sentiments I highlighted above certainly didn't bode well for his career at the Fed. Too much uppity-talkin', not enough line-totin'.

Update, must read: Just came across this: Prominent Chinese Economist Advises Country To Sell Its $500 Billion In GSE Holdings Before QE2 Ends.

Add one more pill to the daily Oxycodone consumption by the Chair Central Planner. In what is about to become the latest headache for Bernanke, popular Chinese economist Lu Zhengwei, a senior economist at China's Industrial Bank Co., has advised that China should promptly sell its GSE holdings on concerns that continued "blank check" writing by Congress to the GSEs will be "almost impossible" as well as fears that as soon as QE2 ends, the entire US bond complex will see a major sell off. In other words welcome to the world of game theory defection: he who sells first, loses the least.


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