Warsh says 'regime change' needed at Federal Reserve after inflation missteps

Federal Reserve Chairman nominee Kevin Warsh on Tuesday called for a "regime change" at the central bank, saying it bungled monetary policy during the COVID pandemic and American consumers are still paying the price.

Mr. Warsh testified before the Senate Banking Committee that if confirmed, he would overhaul Fed policy, including adopting a new "inflation framework." He did not offer any details about what the new structure would look like.

Currently, the central bank targets 2% annual inflation, though that has fallen short in recent years.

"We need a new framework, new tools and, I'd also say, Mr. Chairman [Sen. Tim Scott, South Carolina Republican], new communications," Mr. Warsh said.

Warsh said central bankers currently overcommunicate their views on interest rates every quarter by anonymously predicting where the rates should be.

Meanwhile, he said monetary policy led to mistakes during the COVID pandemic, which is still affecting the U.S. economy.

"After COVID, when prices went up to the tune of 25-to-35% for virtually all deciles of the American people, that's an indication that the Fed missed its mark," Mr. Warsh said. "We are still dealing with the legacy of the policy errors in 2021 and 2022.

"Once you let inflation take hold in the economy, it's more expensive and harder to bring it down, and so the fatal policy error going back four or five years is still a legacy that we're dealing with," he said. "I think that means a regime change in the conduct of policy. I think that means a different, new inflation framework."