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Kevin Warsh delivers Fed a blast of cold heir

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Kevin Warsh delivers Fed a blast of cold heir

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters

Kevin Warsh, the presumptive heir to Jay Powell as Federal Reserve chair, gave a speech last Friday acknowledging “new interest in my views” and delivering a stinging attack on the US central bank’s actions since he resigned as a governor in 2011. Too much quantitative easing, a willingness to accommodate lax fiscal policy, mission creep in going green and helping the poor had led to the recent inflation, he said. That and other failings had left the Fed licking its wounds, nursing lost credibility and “generating worse outcomes for our citizens”.

Warsh said his speech was a “love letter” to the Fed. But when someone says that the world’s problems come from “inside the four walls of our most important economic institutions” and talks of US central bankers as “pampered princes” that deserved “opprobrium” for failing to contain inflation, it does not sound entirely constructive to my ears.

Of course, this was a job application. So let’s constructively critique the speech and ask what a Warsh-led Fed would look like.

The good, the exaggerations and what was missing

I have an enormous amount of time for much of the critique Warsh was making. Central bankers need humility, should not be pampered in public life, require robust oversight and, indeed, opprobrium if they err. There has been a pervasive tendency in these institutions, not just in the US, to pass the buck on the recent inflation. There has been mission creep into areas outside central banks’ core functions, which undermines both their legitimacy and democracy itself. Warsh was entirely correct to criticise central bankers’ choosing to promote group interests ahead of their mandates to control prices.

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But we should not exaggerate these problems, as Warsh clearly did. When there is a US president blowing up the postwar, rules-based economic system and the world has suffered a once-in-a-century pandemic, it is just weird to say the main problems come from within economic institutions such as the Fed.

Even though Warsh is correct to chide central bankers for denying that the purpose of quantitative easing was to facilitate greater government borrowing and stimulus, he is simply wrong to say that Fed officials “did not call for fiscal discipline at the time of sustained growth and full employment”. Powell has repeatedly said US fiscal policy is “on an unsustainable path . . . and we know we have to change that” (26 mins 55 seconds, for one example).

Warsh cites the Fed’s following of fashion on environmental concerns as something that has undermined its legitimacy. But the Fed being a member of the Network for Greening the Financial System between 2020 and 2025, a body that has done precious little, is barely a misdemeanour, and has had no effect on its credibility.

And when put to the financial market test over the past two weeks, far from the Fed needing to “mitigate losses of credibility”, it has been the executive branch of the US government — and in particular, the president — whose credibility has been shown to be deficient.

Exaggerations are inevitably part of a polemic and understandable in a job application. More concerning was what was missing. Warsh made no attempt to paint an analytical counterfactual apart from to assert that the world would be better now if the Fed had not made all the mistakes he outlined. How much higher would interest rates have needed to rise in 2020 and 2021 to offset government spending and curb inflation? Would this have worked? Are all the analyses that suggest the price rises were impossible to avoid without unacceptable trade-offs wrong? Why?

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There was no attempt to address these questions.

Hawkish heir

So what would Warsh’s Fed look like?

The first conclusion must be that it would be more hawkish. Donald Trump might not know this, but Warsh is with the public on inflation. He hates it and would not want it on his watch.

Second, it would be more limited in its scope. This would keep the Fed glued to its mandate — and that would be welcome.

Third, it would probably be more transparent. Warsh conducted an exemplary review of Bank of England transparency in 2014, which has stood the test of time.

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Fourth, and this is my supposition, a Warsh-led Fed would start off with the certainties of his speech, but soon find that ambiguities, nuances and trade-offs were in order.

What does the IMF expect from tariffs?

I have always found it more useful to discuss the things we actually know and the way we think about uncertain events, rather than just talking about what we do not know. In and around the IMF and World Bank spring meetings, central bankers have been doing just that.

Those outside the US think Trump’s tariffs generally represent a disinflationary shock to demand that will depress spending and output. This seems to be the settled view at present in the European Central Bank, with President Christine Lagarde having said tariffs were likely to be “disinflationary more than inflationary”. BoE governor Andrew Bailey agreed, and talked about a “growth shock”. Bank of Japan governor Kazuo Ueda said he shared the view of tariffs as a jolt to business confidence. With a stagflationary shock to deal with, Fed officials have been understandably more vague.

The IMF had the unenviable job of quantifying the tariff effect on the global economy last week. Its basic position was unarguable. Tariffs would cut growth worldwide and raise inflation in the US.

Fund officials talked up the changes in its forecasts with Pierre-Olivier Gourinchas, its chief economist. They said the world economy had entered a new era with the largest imposition of tariffs in a century, that would “greatly impact global trade” and “slow global growth significantly”.

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The most notable dissent from this stance, however, came from the IMF’s own forecasts, which do not tally with these comments.

As the chart below shows, the volume of forecast US goods imports is stable as a proportion of US GDP and rising in real terms every year. Tariffs just are not that consequential in the IMF’s models. In contrast, the Tax Foundation expects US imports to fall 23 per cent.

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Sure, IMF officials have told me that its forecasts have goods declining as a share of nominal GDP. But that itself has interesting implications. If the IMF thinks the volume of US goods imports will rise under tariffs, but the value of those goods will rise at a slower rate, the unit price of US imports (excluding tariffs) falls. Evidence suggests otherwise, although this forecast will put the IMF in the Trump administration’s good books.

I don’t want to bang on about IMF forecasts, but I am unconvinced that the following chart demonstrates a “new era” for global trade warnings from IMF officials.

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What I’ve been reading and watching

A chart that matters

The chart below shows US customs and excise revenues growing faster this year as a result of tariffs, courtesy of Erica York at the Tax Foundation.

Trump is right that billions in revenues are flowing into the US Treasury, although not $2bn a day as he likes to claim.

He is even more wrong about the tariff revenues being large. Some of the increase will decrease profits, limiting other tax revenues. Tariffs will also deter imports.

Another way to scale the revenues is to estimate an annual total. Let’s say customs duties raise $200bn to $300bn in a full year (higher than most estimates). These pale into insignificance compared with US individual income taxes, which are set to raise $2.7tn.

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Here’s What the New Virginia House Map Looks Like

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Here’s What the New Virginia House Map Looks Like

Virginians approved a new congressional map on Tuesday that would aggressively gerrymander the state in the Democrats’ favor, giving the party as many as four more U.S. House seats.

The new map draws eight safely Democratic districts and two competitive districts that lean Democratic, according to a New York Times analysis of 2024 presidential results. It leaves just one safe Republican seat, compared with the five seats the G.O.P. holds on the current map.

The proposed map was drawn by Democratic state legislators and approved by Gov. Abigail Spanberger, a Democrat. It eliminates three Republican-held seats in part by slicing the densely populated suburbs in Arlington and Fairfax Counties and reallocating their overwhelmingly Democratic voters into five congressional districts, some stretching more than a hundred miles into Republican areas.

Perhaps the most extreme new district is the Seventh, which begins at the Potomac River and stretches to the west and south in a manner that resembles a pair of lobster claws. Several well-known Virginia Democrats have already announced their candidacies and begun campaigning in the district.

Reid J. Epstein contributed reporting.

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Southern Poverty Law Center indicted on federal fraud charges

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Southern Poverty Law Center indicted on federal fraud charges

Acting Attorney General Todd Blanche speaks as FBI Director Kash Patel listens during a news conference at the Justice Department on Tuesday in Washington.

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WASHINGTON — The Southern Poverty Law Center was indicted Tuesday on federal fraud charges alleging it improperly raised millions of dollars to pay informants to infiltrate the Ku Klux Klan and other extremist groups, acting Attorney General Todd Blanche said.

The Justice Department alleges the civil rights group defrauded donors by using their money to fund the very extremism it claimed to be fighting, with payments of at least $3 million between 2014 and 2023 to people affiliated with the Ku Klux Klan, the United Klans of America, the National Socialist Party of America and other extremist groups.

“The SPLC was not dismantling these groups. It was instead manufacturing the extremism it purports to oppose by paying sources to stoke racial hatred,” Blanche said.

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The civil rights group faces charges including wire fraud, bank fraud and conspiracy to commit money laundering in the case brought by the Justice Department in Alabama, where the organization is based.

The indictment came shortly after SPLC revealed the existence of a criminal investigation into its program to pay informants to infiltrate extremist groups and gather information on their activities. The group said the program was used to monitor threats of violence and the information was often shared with local and federal law enforcement.

SPLC CEO Bryan Fair said the organization “will vigorously defend ourselves, our staff, and our work.”

Blanche said the money was passed from the center through two different bank accounts before being loaded onto prepaid cards to give to the members of the extremist groups, which also included the National Socialist Movement and the Aryan Nations-affiliated Sadistic Souls Motorcycle Club. The group never disclosed to donors details of the informant program, he said.

“They’re required to under the laws associated with a nonprofit to have certain transparency and honesty in what they’re telling donors they’re going to spend money on and what their mission statement is and what they’re raising money doing,” he said.

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The indictment includes details on at least nine unnamed informants were paid by the SPLC through a secret program that prosecutors say began in the 1980s. Within the SPLC, they were known as field sources or “the Fs,” according to the indictment. One informant was paid more than $1 million between 2014 and 2023 while affiliated with the neo-Nazi National Alliance, the indictment said. Another was the Imperial Wizard of the United Klans of America.

The SPLC said the program was kept quiet to protect the safety of informants.

“When we began working with informants, we were living in the shadow of the height of the Civil Rights Movement, which had seen bombings at churches, state-sponsored violence against demonstrators, and the murders of activists that went unanswered by the justice system,” Fair said. “There is no question that what we learned from informants saved lives.”

The center has been targeted by Republicans

The SPLC, which is based in Montgomery, Alabama, was founded in 1971 and used civil litigation to fight white supremacist groups. The nonprofit has become a popular target among Republicans who see it as overly leftist and partisan.

The investigation could add to concerns that Trump’s Republican administration is using the Justice Department to go after conservative opponents and his critics. It follows a number of other investigations into Trump foes that have raised questions about whether the law enforcement agency has been turned into a political weapon.

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The SPLC has faced intense criticism from conservatives, who have accused it of unfairly maligning right-wing organizations as extremist groups because of their viewpoints. The center regularly condemns Trump’s rhetoric and policies around voting rights, immigration and other issues.

The center came under fresh scrutiny after the assassination last year of conservative activist Charlie Kirk brought renewed attention to its characterization of the group that Kirk founded and led. The center included a section on that group, Turning Point USA, in a report titled “The Year in Hate and Extremism 2024” that described the group as “A Case Study of the Hard Right in 2024.”

FBI Director Kash Patel said last year that the agency was severing its relationship with the center, which had long provided law enforcement with research on hate crime and domestic extremism. Patel said the center had been turned into a “partisan smear machine,” and he accused it of defaming “mainstream Americans” with its “hate map” that documents alleged anti-government and hate groups inside the United States.

House Republicans hosted a hearing centered on the SPLC in December, saying it coordinated efforts with President Joe Biden’s Democratic administration “to target Christian and conservative Americans and deprive them of their constitutional rights to free speech and free association.”

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Virginia Gov. Abigail Spanberger Stressed Pragmatism, But Politics Hound Her

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Virginia Gov. Abigail Spanberger Stressed Pragmatism, But Politics Hound Her

On the night of her resounding win in last fall’s election for Virginia governor, Abigail Spanberger told her supporters that they had sent a message to the world. “Virginia,” she said in the opening lines of her victory speech, “chose pragmatism over partisanship.”

But even then it was clear that the first big issue of her term would be as partisan as it gets: a proposed amendment by her fellow Democrats to allow them to gerrymander the state’s 11 congressional districts.

The push to redraw the Virginia map was another salvo in a barrage of redistricting spurred by President Trump in a bid to keep Republicans in control of the House in this year’s midterm elections.

Virginians vote on Tuesday on whether to adopt the proposed map, and if the “Yes” vote wins, Democrats could end up with as many as 10 seats, up from the six they hold now. The redistricting battles of the last year would end up in something of a draw, with gains for Democrats in California and Virginia offsetting gains for Republicans in Texas, Missouri and North Carolina — unless Florida lawmakers decide in the coming weeks to draw a new, more Republican-friendly map.

Historically, redrawing of congressional maps has been done each decade after the U.S. census. But with Republicans holding such a slim majority in the House, Mr. Trump began by pressing Texas to redraw its maps, touching off the wave of gerrymandering

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Virginia Democratic legislators rolled out their redistricting plan last October, setting in motion the state’s lengthy amendment process just as the campaign for governor was entering its final weeks. At the time, Ms. Spanberger expressed support for the plan, though she emphasized that its passage was up to the legislature and then to the voters.

But even if her formal role in the process was relatively minor — Ms. Spanberger signed the bill setting the date for the referendum — the politics of the effort has loomed over the first few months of her term. Her support for the amendment has drawn accusations of hypocrisy from the right and complaints from some on the left that she has not been outspoken enough in her advocacy.

“There’s always going to be somebody who wants me to do something differently,” the governor said in an interview on Saturday at a rally in support of the amendment outside a home in Northern Virginia. “I will always make someone unhappy, and I will always make someone happy.”

Ms. Spanberger, a former C.I.A. officer and three-term congresswoman, won a 15-point victory in 2025 after running on a campaign focused on pocketbook issues. Centrism has been her political brand since she was first elected to the House in 2018, flipping a district that had long leaned to the right.

Now Republicans campaigning against the amendment have made Ms. Spanberger a prime target, deriding her as “Governor Bait-and-Switch” and highlighting an interview in August 2025 in which she said she had “no plans to redistrict Virginia.”

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“This was the perfect opportunity for her to show that she is the middle-of-the-road suburban mom that she portrayed herself as,” said Glen Sturtevant, a Republican state senator. He dismissed the notion that this was an effort that had been thrust upon her, pointing out that she had signed the bill setting the date for the referendum. “She is certainly an active participant in this whole process,” he said.

Republicans have eagerly highlighted recent polls suggesting that Ms. Spanberger’s honeymoon is over, though because governors in Virginia cannot serve two consecutive terms, public approval is less of a pressure point than it might be elsewhere. Some of her political adversaries have tied the drop in her ratings to her involvement in the campaign for the amendment.

But a number of factors are at play in those sagging poll numbers. Some on the right are irked by her support of standard Democratic priorities like gun control measures and limits to cooperation with federal immigration agents.

But some of the most vociferous criticism of her from Republicans, up to and including the president, has been for a host of proposed taxes and tax hikes in the legislature — on everything from dog grooming to dry cleaning — that she in fact had nothing do with. Most of those taxes, which were floated by various lawmakers, never even came up for a vote.

But Ms. Spanberger did not publicly hit back against these attacks until recent days, a delay that some Democrats say was costly.

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“She let other people define her,” said Scott Surovell, the State Senate majority leader.

Mr. Surovell’s frustration echoed a growing discontent among Democrats about the governor’s recent moves. For all the Republican criticism of her, some operatives and lawmakers said, Ms. Spanberger has not been aggressive enough in pushing for Democratic priorities, redistricting among them.

This criticism broke out into the open in recent days, after the governor made scores of amendments to bills that had passed the General Assembly. Some lawmakers and Democratic allies accused her of unexpectedly diluting long-sought goals like expanded public sector unions and a legal retail marketplace for cannabis.

“Our party base is looking for us to stand up and fight and advocate and deliver,” said Mr. Surovell, who represents a solidly Democratic district in Northern Virginia. “It’s hard to deliver when you’re standing in the middle of the road.”

In the interview, Ms. Spanberger insisted that she supported the purpose of many of the bills but had to make amendments to ensure that her administration could implement them.

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And she said she had been explicit in her support of the redistricting effort, appearing in statewide TV ads encouraging people to vote “Yes” even as an anti-amendment campaign has sent out mailers suggesting that the governor opposes the effort.

But she said she had never been in a position to barnstorm the state as Gov. Gavin Newsom did in the months leading up to the redistricting referendum that passed in California. Mr. Newsom is a second-term governor in a much bluer state, she said, while she only recently took office and has been “in the crush of their legislative session,” with hundreds of bills to read and examine in a short period.

“Those who may not be focused on the governing and only on the politics, they’re going to want me to do politics 100 percent of the time,” she said. “And for people who care about the governing and not the politics, they’re going to want me to do governing 100 percent of the time.”

Her preference, as she has often made apparent, is for the governing over the politicking. But she acknowledged that it is all part of the job.

Asked if she lamented that the highest-profile issue of her term so far was such a polarizing matter, rather than the cost-of-living policies she emphasized on the campaign trail, she said: “Any person in elected office wants to talk about the thing they want to talk about all the time, and that’s it. So I won’t say ‘No’ to that question.”

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