After a 15-year hiatus, Kevin Warsh is set to return to the Federal Reserve, succeeding Jerome Powell as Chairman, with a stated aim to "reshape the Fed." According to reports from multiple U.S. media outlets, Kevin Warsh will be sworn in as Chairman of the Federal Reserve on May 22 (this Friday). A White House official indicated that President Donald Trump will host the swearing-in ceremony for Warsh at the White House. Now 56 years old, Warsh served as a Federal Reserve Governor from 2006 to 2011, resigning due to his opposition to the second round of quantitative easing (QE). Since then, he has frequently appeared in public as a critic of the Fed, particularly intensifying his criticism of Powell's monetary policies in recent years. Upon assuming leadership of the Fed, how will Warsh reshape the institution? First, regarding monetary policy, Warsh has proposed a combination of "balance sheet reduction and interest rate cuts." The Fed's dual mandate includes price stability and maximum employment. Warsh believes maintaining price stability is the cornerstone of the Fed's credibility, asserting that inflation is a choice for which the Fed must be held accountable. A key criticism Warsh has leveled at Powell is his misjudgment of the situation in 2021 and 2022, when Powell viewed inflation as a temporary phenomenon. However, U.S. inflation reached its highest level in 40 years and has yet to return to the 2% target. Warsh contends that inflation is a monetary phenomenon, driven by excessive money supply. Consequently, he is skeptical and critical of the Fed's second and subsequent rounds of quantitative easing. He argues that while QE was a "necessary evil" during the financial crisis, the central bank should reduce its balance sheet and retreat to its original boundaries once the crisis subsides. Otherwise, the expansion of the Fed's balance sheet will only distort markets, fuel a surge in federal spending, and push U.S. fiscal policy onto a dangerous path. The reality is that the Fed's balance sheet has continued to grow, currently hovering around $7 trillion. Therefore, a core element of Warsh's monetary policy is "balance sheet reduction." Reducing the balance sheet means withdrawing dollars from circulation, which helps control inflation but poses challenges for the U.S. Treasury market. Another key aspect of Warsh's monetary policy is interest rate cuts. Balance sheet reduction and interest rate cuts are opposing monetary policy tools: the former tightens policy, while the latter eases it. Notably, President Trump favors rate cuts. Regarding the rationale for cuts, Warsh has suggested that productivity gains from artificial intelligence will suppress prices of goods and services, thereby creating room for the Fed to lower rates. However, implementing the "balance sheet reduction and rate cut" combination faces significant challenges. Current U.S. inflation remains elevated. Data from the Bureau of Labor Statistics shows that the U.S. Consumer Price Index (CPI) rose 3.8% year-over-year in April, exceeding market expectations of 3.7% and reaching its highest level since May 2023. The core CPI increased 2.8% year-over-year, surpassing the expected 2.7% and hitting a new high since September 2025. This presents substantial resistance to lowering interest rates. Simultaneously, concerning signals are emerging from the U.S. Treasury market. The yield on the 10-year U.S. Treasury note recently climbed above 4.6%, marking a one-year high. Soaring bond yields correspond to falling bond prices, which could reflect market expectations that inflation will persist longer or represent a preemptive reaction to Warsh's anticipated balance sheet reduction policies. In any case, the Treasury market may hinder the near-term implementation of Warsh's proposed policy mix. Second, regarding the Fed's functions, Warsh believes the institution should focus on its core mandate of monetary policy. Warsh argues that the Fed overstepping its authority has drawn it into political matters, thereby compromising its independence. He has even described the expansion of the Fed's functions as "losing its way." Warsh states that the Fed must adhere to its boundaries. Venturing into fiscal and social policy areas where it lacks both mandate and expertise poses the greatest risk to its independence. The Fed should not act as a catch-all agency for the U.S. government, nor should it overstep to adjudicate matters that should be debated and decided by other departments. "The more the Fed comments on issues outside its purview, the harder it becomes to ensure price stability and maximum employment, and the more politically vulnerable it makes itself. The Fed's tendency to expand its role signals an 'existential risk,'" Warsh said. Third, on the issue of independence, Warsh believes the Fed's independence is the foundation of its credibility. Warsh posits that the Fed's independence varies across its functions. He asserts that the Fed possesses the highest degree of independence in monetary policy, and this independence is crucial. During congressional hearings, he stated he would never follow President Trump's directives on interest rate policy. However, he also believes the Fed cannot claim the same level of independence in areas such as managing public funds, bank regulatory policy, and international financial affairs. Additionally, Warsh has expressed dissatisfaction with the forward guidance that has dominated Fed policy communication for over a decade. He prefers fewer public pronouncements from Fed officials predicting the direction of interest rates. The Fed's next policy meeting is scheduled for June 17-18, which will be the first chaired by Warsh. At that time, Warsh will discuss and decide on policy alongside officials including former Chairman Jerome Powell, who remains on the Board of Governors.