Walsh's policy stance: Advancing interest rate cuts and balance sheet reduction in parallel, inflation is a choice for the Federal Reserve

News on December 16: As Trump allies push for Warsh to become the next Federal Reserve Chair, the probability of Warsh being appointed as the new Fed Chair has surpassed Hassett in prediction markets, rising to the top spot. According to the latest research report from the Deutsche Bank team led by Matthew Luzzetti, if Warsh is elected as Fed Chair, he may support interest rate cuts while simultaneously advancing balance sheet reduction (QT). However, the prerequisite for both to proceed in parallel is that regulatory reforms can reduce the banking system's demand for reserves, and whether this can be achieved in the short term remains uncertain. As a popular successor to Powell, Warsh earlier this year proposed the view that "inflation is a choice," arguing that inflation is not caused by supply chains or geopolitics, but stems from the Fed's own policy decisions. He called for the Fed and the Treasury to each focus on their respective responsibilities—interest rates and fiscal accounts—while the Fed must reform and return to its core mission of maintaining price stability. Despite his criticism of policy, he is extremely optimistic about the outlook for the U.S. economy, believing that AI and deregulation will bring about a productivity boom similar to that of the 1980s. In terms of background, Warsh is a lawyer by training and served as a Fed governor from 2006 to 2011, playing a key communication role during the global financial crisis. He has long criticized the Fed's aggressive balance sheet expansion over the past 15 years, arguing that quantitative easing deviates from the central bank's core functions. Currently, Warsh is a partner at the Druckenmiller family office Duquesne, a distinguished visiting fellow at the Hoover Institution, and a lecturer at Stanford Graduate School of Business. His background spanning academia, regulation, and investment gives him broad influence in the fields of monetary policy and financial markets. (Wallstreetcn)