US Implications for Fed Policy From Leadership Change

Incoming Fed Chair Kevin Warsh is expected to prioritize Fed independence while shifting the analytical framework away from forward guidance and New Keynesian models. He will likely advocate for a smaller balance sheet and a greater emphasis on trimmed mean inflation to hit the 2% target.

Key Takeaways

• 1.Incoming Chair Kevin Warsh's primary task will be ensuring market confidence in Federal Reserve independence.
• 2.The Fed is likely to scale back the use of forward guidance and unconventional policy tools, including a potential review of the 'dot plot'.
• 3.Warsh favors a smaller Fed balance sheet and believes quantitative easing should be reserved for emergency situations only.

Table of Contents

• US: implications for Fed policy from leadership change
• The inflation toolkit
• ANZ Research's view

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