The Federal Reserve: A Difficult Balancing Act – Part 3: Welcome Kevin Warsh, the Supreme Court Weighs In

Written by Larry Eppolito, MBA, CFP®

In Part 1, I discussed the Federal Reserve's difficult balancing act – promoting full employment while keeping inflation under control.

In Part 2, I discussed the inflation spiral of the 1970s, the Volcker prescription for curing it, and why a central bank's independence from political pressure matters so much.

This letter introduces the Fed's new Chairman, Kevin Warsh, and covers breaking news: the Supreme Court's June 29, 2026 ruling on the Fed's independence.

The power of each branch of government is supposed to be checked by the other two. Many people don't mind when "their guy" (or gal) gains more power – but power gained today can be used by the other side tomorrow, once the political winds shift. Keep that in mind as you read on.

I kept the top portion fairly brief for those who only want The Bottom Line. There is some good stuff underneath for Those Who Dare to Venture Forth. The following represents my beliefs.

The Bottom Line

Meet Chairman WarshKevin Warsh isn't new to the Fed. He served as a Fed Governor from 2006 to 2011, sitting on the board through the 2008 Financial Crisis alongside then-Chairman Ben Bernanke. After leaving, he became a frequent critic of Fed policy, at one point calling the inflation surge that followed the Covid pandemic (inflation peaked at 9% in June of 2022) “the biggest policy error in forty or fifty years.” (1)

President Trump nominated Warsh in January. The Senate confirmed him on May 13th, by a vote of 54-45 – the closest confirmation vote for a Fed Chairman in modern history. He was sworn in on May 22nd.

A sad note of timing: Alan Greenspan, the Fed's longest-serving Chairman and a figure Warsh has long admired, passed away recently at the age of 100. Greenspan led the Fed from 1987 to 2006, through the 1987 stock market crash, the dot-com boom and bust, and much of the modern era of central banking. Warsh praised Greenspan at his own swearing-in, and as you'll see below (should you dare to venture forth), Greenspan's influence on Warsh's thinking is already showing up in how the Fed communicates – he’s stated he does not believe in the Fed giving forward guidance of its possible intentions to tighten or loosen monetary policy.

President Trump has made no secret of wanting lower interest rates. Despite that, Warsh has pledged to remain "strictly independent" and has said he won't commit to cutting rates simply because the White House wants him to.

Breaking News: The Supreme Court Weighs In On June 29th, the Supreme Court ruled that President Trump could not remove Fed Governor Lisa Cook while her lawsuit challenging her firing makes its way through the courts.

Some background: Trump attempted to fire Cook last August, citing allegations from before she joined the Fed. Cook denied the allegations and sued, arguing the President hadn't followed the process the law requires to remove a Governor.

By a 5-4 vote, the Court agreed – for now. The majority noted that the Fed has long been treated as a "special arrangement sanctioned by history," one that previous Congresses and courts have shielded from political interference.

One important nuance: the Court did not rule that a President can never remove a Fed Governor. Rather, it suggested that any removal must satisfy the legal standard for "cause" and cannot be based simply on a disagreement over monetary policy. In this case, the Supreme Court concluded that the Administration's attempt did not satisfy that standard. The broader constitutional question remains for another day. Still, this is one of the strongest signals yet from the nation's highest court that the Fed's independence is worth protecting.

Why This Matters to You

As I wrote in Part 2, an independent Fed gives investors around the world confidence that decisions are made based on what's good for the US economy long-term, not what's politically convenient in the moment. That confidence helps keep the US dollar strong, interest rates more stable than they might otherwise be and protects the dollar’s status as the world’s primary reserve currency.

Taken together, Warsh's early insistence on independence, his return to Greenspan-style discretion, and the Court's ruling protecting Governor Cook all point in the same direction: an institution still trying to operate above politics, even as the pressure on it grows.

For Those Who Dare to Venture Forth

A Closer Look at WarshWarsh's path to the Chairmanship took the better part of a year. He was one of nearly a dozen candidates considered, including current Fed Governors Christopher Waller and Michelle Bowman, and National Economic Council Director Kevin Hassett. Worth noting – this is Warsh's second tour at the Fed, and the first time in nearly 80 years a former Fed official has returned to lead it. That history matters. He's seen how the institution handles a genuine crisis, and he's also spent over a decade outside it, watching and critiquing from a distance.

Why No Forward Guidance? A Page from Greenspan's PlaybookFor most of the Fed's modern history, it said very little. The Fed didn't even formally announce its rate decisions until 1994 – a practice Greenspan himself introduced – and even then, the language was notoriously vague. Economists came to call it "Fedspeak": carefully ambiguous, designed to give the Fed room to maneuver without locking itself into promises. (2)

That changed after the 2008 financial crisis. Under Bernanke, Yellen, and Powell, the Fed moved toward far greater transparency – press conferences, published rate forecasts (the "dot plot"), and explicit forward guidance about where rates were likely headed. The goal was to give markets more certainty.

Warsh believes that experiment went too far. At his confirmation hearing, he put it plainly: "I don't believe in forward guidance. I don't believe that I should be previewing for you what a future decision might be." At his first meeting as Chairman in June, he shortened the Fed's statement dramatically, dropped forward guidance entirely, and declined to submit his own forecast to the Fed's projections.

His reasoning: markets had grown so dependent on the Fed's guidance that they began reacting to the guidance itself, rather than to the economy underneath it – sometimes adding volatility instead of reducing it.

Larry, What do You Think About Warsh’s Forward Guidance Stance?

I find this encouraging. It suggests a Chairman willing to let the data speak rather than trying to manage market expectations through promises he may later need to break.

Here's an example of why that matters to me. Congress passed its last major stimulus bill – the $1.9 trillion American Rescue Plan – in March of 2021, more than a year into the pandemic recovery, at a point when many economists already had concerns the economy no longer needed that much additional fuel. At the same time, the Fed was forecasting that the inflationary pressures building in the economy would prove "transitory" – the result of temporary supply and demand imbalances that would resolve on their own. In hindsight, that forecast wasn't entirely wrong – some of it was indeed temporary. But it left the Fed locked into an accommodative policy, including large-scale purchases of the bonds the Treasury issued to fund Congress’ stimulus plan, even as inflationary pressures kept building. Many economists believe that combination – stimulus arriving later than needed, paired with a Fed publicly committed to its "transitory" call – contributed meaningfully to the inflation spike that ultimately peaked at 9% in June of 2022.

During his April 2026 Senate confirmation hearing Kevin Warsh called the Fed’s bond-buying spree "the biggest policy error in forty or fifty years." (1)

That inflation hurt many Americans, particularly those with lower incomes. And remember, the damage from high inflation extends well beyond higher prices. It can affect business investment, employment, innovation, job opportunities, and even government finances for many years.

Thankfully, the cyclical component of inflation proved temporary. As supply chains recovered and energy markets stabilized, those supply-and-demand inflationary pressures largely faded over the next couple of years. During that same period, the Fed's tighter monetary policy gradually removed much of the excess fuel from the economic fire.

It’s Hard to Reverse Course

I don't say this to relitigate who was right or wrong. I say it because it illustrates a real cost of forward guidance: once a central bank tells the public what it expects to do, reversing course becomes politically and reputationally difficult, even when the data says it should. Greenspan understood that a central bank's credibility comes from its judgment and discipline – not from how clearly it can predict its own next move. Warsh, in invoking Greenspan's name and example, appears to be signaling the same thing: less hand-holding, more independent judgment.

The Legal Mechanics Behind the Cook RulingUnder the Federal Reserve Act, a President can only remove a Governor "for cause" – meaning there must be evidence of wrongdoing, and the Governor is entitled to certain procedural protections before removal. The government argued that courts shouldn't even be able to review whether the President's "cause" was legitimate. The Court rejected that argument. As Justice Kavanaugh noted during arguments, allowing a President to fire any Governor without judicial review "would weaken, if not shatter, the independence of the Federal Reserve." Justice Roberts wrote that protection from removal for Fed Governors is consistent with the Constitution, noting the Founders understood the dangers that could come from even a "suspicion" of political manipulation of monetary policy. Roberts wrote, “Not only the fact of independence, but the appearance of independence is key to the Federal Reserve’s design.” (3)

The President Can Fire Those at Other Independent Agencies

It's also worth noting this ruling didn't happen in isolation. Also on June 29^th, the Court sided with the administration in a separate case, upholding the President's firing of an FTC Commissioner. So, this isn't simply a story about the courts reining in presidential power across the board – it's more specific than that. The Fed, in particular, appears to be getting special treatment from the Court, precisely because of its unique role in the economy and global financial markets. (4)

In Summary:

• Kevin Warsh, a former Fed Governor and outspoken Fed critic, was confirmed as Chairman in the closest vote in modern history.
• Chairman Warsh believes the Fed's modern transparency push went too far, particularly with forward guidance.
• Many economists believe the 2021 stimulus, combined with the Fed's "transitory" inflation call, contributed to the inflation spike that peaked at 9% in 2022 – a cost borne disproportionately by lower-income Americans, and a reminder of how hard it can be for a central bank to reverse course once it's made a public commitment.
• Despite pressure from the White House to cut rates, Warsh has pledged to keep the Fed independent – and has revived a more Greenspan-style approach to communication, dropping forward guidance and shortening Fed statements.
• On June 29th, the Supreme Court blocked President Trump's attempt to remove Fed Governor Lisa Cook while her case proceeds, citing the importance of Fed independence. The ruling was narrow – it left open whether a President can ever remove a Governor – but it's the strongest signal yet that the courts take the Fed's independence seriously.
• The Court's ruling didn't apply broadly to all independent agencies – the same day, it sided with Trump on the FTC firing case, suggesting the Fed is being treated as a special case, not part of a general trend.
• An independent Fed matters to you because it supports investor confidence, a stable dollar, more predictable long-term interest rates and helps to protect the dollar’s exorbitant privilege as the world’s primary reserve currency.
• As always: power given to one side today can be used by the other side tomorrow. I believe the Fed's independence protects all of us, regardless of which party occupies the White House.

I hope you’re having a great summer!

Best wishes,

Larry6/30/2026

P.S. Please feel free to send this along to those who may benefit.

Larry Eppolito, MBA

Managing Partner, Eppolito, Carbone & Co.

Senior Financial Advisor, RJFS

CERTIFIED FINANCIAL PLANNER® Professional

Eppolito, Carbone & CO., LLC

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