Warsh can’t succeed without help from White House

Kevin Warsh faces a truly daunting task. The new chairman of the Federal Reserve must avoid provoking a president he had to charm to get the job. He needs to repair relations with the Fed’s other policymakers, many of whom he recently criticized — not least, former Chair Jerome Powell, who remains on the central bank’s board for now. While contending with all that, he must also affirm the Fed’s commitment to get inflation back down to 2%.

After his first meeting as leader of the Fed’s policymaking committee, Warsh left no doubt that he means to make a difference. But rising to these challenges — while achieving steady growth and stable prices — will require allies on the Federal Open Market Committee and room for maneuver from the White House. With luck, the president will see that an independent Fed is in his own interests, too.

The most recent reading on inflation hasn’t helped. Tariffs and high energy costs thanks to the conflict with Iran have pushed consumer price inflation back above 4%. The annual rate has now been running at more than the 2% target for more than five years. Granted, core CPI is relatively subdued, though still above target, and it’s likely that inflation will subside again later this year unless fighting resumes or the administration piles on additional tariffs.

Right now, though, inflation at 4% alongside signs of a strengthening labor market leaves no space for lower rates; if such conditions persist, the next move in rates might need to be up. Despite voting unanimously on June 17 to keep the policy rate at 3.5% to 3.75%, roughly half the FOMC’s members said they expect an increase to be appropriate later this year.

Whatever happens, the Fed can’t do its job unless it’s seen to be independent. The president’s insistence that interest rates should be cut regardless of economic circumstances only makes it harder for the Fed to contain inflation and, once that’s done, safely cut the policy rate. The president is much less likely to get his way if he keeps on heckling, especially if he turns on Warsh as he did on Powell.

If the new chairman is granted some space, he should use it to guide his fellow policymakers toward overdue reforms to Fed procedures. His colleagues, miffed as they might be by Warsh’s talk of “regime change,” should aim to be helpful and open-minded, so long as he insists on independence and remains dedicated to price stability.

Warsh clearly grasps the challenges ahead. At the meeting, he underlined the central bank’s commitment to its 2% inflation target, but he also announced the creation of five task forces to examine the Fed’s methods — regarding its communications, balance-sheet operations, sources of data, and understanding of productivity and inflation. Notably, he made an early start on the first of those items with a conspicuously abbreviated policy statement and by downgrading the Fed’s “forward guidance,” recusing himself from the so-called dot plot (formally known as the quarterly Summary of Economic Projections), which sets out policymakers’ predictions about the economy and the Fed’s intentions for interest rates.

Officials including Powell have acknowledged the need to consider such changes. But these adjustments will require careful thought and frank discussion. They shouldn’t be brusquely forced on the unpersuaded or implemented at a stroke. Nor should they be opposed simply because the administration’s preferred nominee is sponsoring them.

A Fed mired in quarrels or seen to be at the administration’s beck and call may quickly lose credibility. To succeed, it needs to be capable of reaching consensus and worthy of trust. And this much really shouldn’t need saying: That kind of Fed is an asset not just for the country but for the White House as well.