Kevin Warsh Unlikely to Drive Sharp Fed Policy Shift, BofA Says

Kevin Warsh’s potential appointment as Federal Reserve chair would likely result in only gradual changes to monetary policy, according to Bank of America. Despite his hawkish reputation, BofA strategist Mark Cabana expects Warsh to support recent rate cuts while advocating a smaller, shorter-duration balance sheet limited to U.S. Treasuries. Warsh has long criticized the Fed for “mission creep,” urging it to exit climate and inclusive employment initiatives. He also questions the value of the Fed’s data-dependent approach, warning that economic forecasts can trap policymakers into their own projections. BofA notes he may seek to reduce the frequency of the Summary of Economic Projections releases. However, internal resistance within the Federal Open Market Committee (FOMC) is expected to limit the scope of any reforms. BofA remains skeptical that Warsh could significantly reduce transparency or shift away from data reliance, concluding that under his leadership, Fed evolution would be incremental, not disruptive.