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Former Fed Governor Kevin Warsh Urges Return to...
Finance Megaphone
April 25, 2025
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Former Fed Governor Kevin Warsh Urges Return to Traditional Central Banking, Slams Fed Overreach
Global Trade Tensions and Policy Uncertainty Ranked as Top Financial Stability Risks in Fed Survey
US Shale Production Slows as Falling Oil Prices and Tariffs Impact Drilling Plans
Former Fed Governor Kevin Warsh Urges Return to Traditional Central Banking, Slams Fed Overreach
In a sharp critique, former Federal Reserve Governor Kevin Warsh accused the U.S. central bank of straying beyond its core mandate, undermining its credibility and independence. Speaking at a Washington conference, Warsh argued the Fed should focus solely on stable prices and full employment, rather than expanding into broader economic and political domains. He criticized its reliance on outdated data, overuse of forward guidance, and public commentary by policymakers, calling these distractions from its primary goals. Warsh, a Republican with ties to Trump, also blamed the Fed for contributing to ballooning national debt and post-pandemic inflation, warning that its actions distort markets and increase systemic risks. While once considered a potential replacement for Fed Chair Jerome Powell, Warsh offered few policy specifics but echoed long-standing calls for a more disciplined, narrowly focused central bank—echoing the sentiments of hawkish economists and signaling a desire for major reform.
Global Trade Tensions and Policy Uncertainty Ranked as Top Financial Stability Risks in Fed Survey
The latest Federal Reserve survey highlights global trade tensions, policy uncertainty, and U.S. debt sustainability as the biggest risks to financial stability. The bi-annual survey, conducted after President Trump’s return to office, shows a significant rise in concerns, with 73% of respondents citing global trade risks, driven by tariffs and potential trade wars. Policy uncertainty, especially regarding government spending and international relations, also ranked high. Market volatility and issues like Treasury market functioning and foreign divestment of U.S. assets were added to the list of concerns. While the U.S. banking system remains resilient, the survey pointed to growing risks from hedge fund leverage and increasing credit commitments to non-banks. Despite these challenges, the Fed found stability in commercial real estate prices and overall market orderliness.
US Shale Production Slows as Falling Oil Prices and Tariffs Impact Drilling Plans
As oil prices drop to multi-year lows and tariffs raise construction costs, small U.S. shale producers are scaling back drilling, potentially slowing future oil output growth. The U.S. is still on track for record production in 2025, but both the Energy Information Administration and the International Energy Agency have reduced growth forecasts. Rising costs, including a 25% tariff on steel, have increased drilling expenses, prompting companies like Blackridge Resources and Arena Resources to delay projects. The slump in oil prices, currently hovering around $60 per barrel, makes it difficult for operators, especially in high-cost regions like Powder River, to remain profitable. The decline in drilling activity has impacted oilfield service firms such as Halliburton and Baker Hughes, and analysts predict that every $5 drop in oil prices could lead to a 5% cut in U.S. shale spending. Despite the downturn, some producers are using this time to prepare for a potential rebound in prices.
That’s a wrap for this edition of Finance Megaphone.
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