Kevin Warsh, a leading candidate to become the next Federal Reserve chair, has once again made headlines with his latest comments on “Fed Independence”.

In a recent interview, he stated that central bank independence is "essential"—but added that this independence has very clear limits. He emphasized that under current Fed Chair Jerome Powell, the central bank has ventured into policy areas beyond its mandate. Warsh also argued that maintaining independence does not conflict with immediate rate cuts and that the Fed should not overreact to tariffs, causing sustained inflation.

Previously dubbed the "Shadow Fed Chair" by some Wall Street institutions, Warsh—a former Fed governor who Trump considered for Treasury secretary—has repeatedly voiced support for Trump’s aggressive rate-cut stance. Many on Wall Street see him as the most likely successor to Powell. His past pro-rate-cut remarks were even interpreted as a "pledge of allegiance" to Trump. Warsh once stated that if the Fed fails to prevent tariff-driven price hikes from turning into persistent inflation, it would be a policy failure by the Fed, not the tariffs themselves.

The concept of a "Shadow Fed Chair" was proposed by current U.S. Treasury Secretary Scott Bessent. The idea emerged from Trump’s frustration with the Fed’s reluctance to cut rates and concerns over economic risks from tariffs. Bessent argued that this "shadow chair" could provide forward guidance on monetary policy, making markets "care less about Powell’s words."

At the time, Bessent advocated appointing the next Fed chair well in advance, allowing this "shadow" figure to shape policy communication and expectations during Powell’s remaining term, effectively weakening Powell’s influence and securing monetary policy alignment with Trump’s economic agenda.

Trump has repeatedly criticized Powell’s hawkish stance, arguing that high interest rates undermine his economic growth plans. Bessent’s proposal offered Trump a workaround: a "soft replacement" of Powell within legal bounds, avoiding the politically fraught process of outright removal. However, the idea sparked fierce debates over Fed independence and thrust Bessent into the spotlight regarding Powell’s succession.

“History tells us that the independent operations in the conduct of monetary policy are essential,” Warsh said in the Thursday interview. “But that doesn’t mean the Fed is independent in everything else it does.”

Warsh served as a Fed governor from 2006 to 2011, during which he adhered to inflation-focused hawkish policies. Yet this year, he has pivoted to advocate aggressive rate cuts—aligning perfectly with Trump’s stance. The former president is actively weighing whom to nominate as Fed chair when Powell’s term expires in May 2025.

Warsh doubled down on his criticism of Powell’s leadership, accusing the Fed of overestimating the inflationary impact of Trump’s tariffs and stressing that tariff-driven inflation is transitory, not persistent.

“If they were a very credible central bank, they could say, ‘We’re looking past this one-off change in prices,’ and so their hesitancy to cut rates, I think, is quite a mark against them.”

Warsh also defended Trump’s public pressure on the Fed, arguing that the central bank’s current hesitation to cut rates is eroding its credibility.

“We need regime change in the conduct of policy,” Warsh said: “The credibility deficit lies with the incumbents that are at the Fed, in my view.”