Trumponomics• Apr 30, 2026• 26:14Interview

Kevin Warsh Eyes Fed ‘Regime Change’ With Less Talk, New Models | Trumponomics

From Trumponomics

Krishna Guha•Vice Chairman and Head of Economics and Central Bank Strategy, Evercore ISI

Executive Summary

Donald Trump's nominee for Fed Chair, Kevin Walsh, plans a significant "regime change" at the Federal Reserve, breaking from the continuity of the Bernanke, Yellen, and Powell eras.
Walsh intends to end forward guidance and drastically reduce the volume of Fed communications, a move analysts believe will inject significant uncertainty and volatility into financial markets.
Walsh's policy framework reinterprets the Fed's dual mandate to prioritize inflation exclusively and favors alternative inflation metrics like trimmed-mean, which could be used to argue for rate cuts.
Despite a historically hawkish reputation, Walsh is positioning himself as a new kind of dove, arguing for potential rate cuts based on a belief in long-term, technology-driven disinflation rather than labor market weakness.

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Concerns Raised

A significant increase in market volatility and uncertainty due to the proposed reduction in Fed communication and the end of forward guidance.
Erosion of Federal Reserve credibility and independence due to perceived political deference and 'shopping' for convenient inflation metrics.
The risk of abandoning established policy frameworks without a coherent, well-communicated replacement, potentially leading to policy errors.
A Walsh-led Fed may be less responsive to a weakening labor market, prioritizing its inflation-only interpretation of the mandate.

Opportunities Identified

A potential for earlier-than-expected interest rate cuts if Walsh's thesis on technology-driven disinflation gains traction within the FOMC.
The introduction of new supply-side models could provide a more comprehensive understanding of the economy beyond traditional demand-side analysis.

Key Themes

Fed 'Regime Change'

Kevin Walsh is explicitly promising a fundamental shift in how the Federal Reserve operates. This includes introducing new supply-side economic models, changing the interpretation of the Fed's mandate, and adopting a communication style modeled on Alan Greenspan rather than his more recent predecessors.

This signals a major break from decades of established central banking practice, creating profound uncertainty for markets and the global economy about the future of U.S. monetary policy.

The End of Forward Guidance

A core component of Walsh's proposed changes is the elimination of forward guidance and a significant reduction in overall communication. He believes central banks talk too much, a stark contrast to the era of increasing transparency.

This policy shift is expected to increase market volatility, as investors will have less insight into the Fed's thinking. It forces a return to interpreting policy actions themselves, rather than relying on explicit guidance.

Redefining Inflation and the Dual Mandate

Walsh interprets the Fed's dual mandate of price stability and maximum employment as effectively a single mandate for inflation. He also shows a preference for alternative inflation measures, like trimmed-mean, which currently show lower inflation by excluding outliers like tariff-affected goods.

This reinterpretation means the Fed would be less reactive to signs of a weakening labor market. The focus on different inflation metrics could be perceived as 'shopping' for data that supports a desired policy path, potentially undermining the Fed's credibility.

Political Independence Under Scrutiny

During his confirmation hearing, Walsh's refusal to acknowledge that tariffs contribute to inflation was seen as a sign of deference to Donald Trump. This, combined with his broader agenda, raises concerns about the future independence of the central bank.

A central bank perceived as politically influenced can lose credibility, leading to unanchored inflation expectations and greater economic instability. Walsh's actions suggest a willingness to align with the administration's narrative, even on core economic facts.

A New Form of Dovishness

Analyst Krishna Guha argues that Walsh's hawkish reputation is misleading. Instead, he is positioning to argue for interest rate cuts based on a belief that technology will drive long-term disinflation, a starkly different rationale from the traditional focus on labor market slack.

This reframes the debate from 'hawk vs. dove' to the underlying economic philosophy. A Walsh-led Fed might cut rates for reasons unrelated to immediate economic weakness, creating a new and unfamiliar policy reaction function for investors to decipher.

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Topics

Federal Reserve Monetary Policy Kevin Walsh Jerome Powell Inflation Central Banking Forward Guidance Fed Communication Dual Mandate Trumponomics Economic Models Market Volatility Tariffs Krishna Guha Alan Greenspan

Processed Apr 30, 2026 yt-dlp + mlx-whisper + Gemini

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