Donald Trump's chosen next Federal Reserve Chair candidate, Kevin Warsh, officially attended a congressional hearing last night. He stated: while cutting interest rates, he is also shrinking the balance sheet, running both strategies simultaneously. This seemingly contradictory combination will fundamentally reshape the global liquidity logic in the future.

First, he established his stance by emphasizing the independence of the Federal Reserve, bluntly stating that the past few years of runaway inflation were policy failures, and public trust has been exhausted. He said it’s necessary to restore credibility and also to replace outdated inflation measurement methods, incorporating productivity changes brought by AI into monetary policy, rather than rigidly sticking to old indicators.
Regarding the balance sheet, he took a firm stance: strongly opposed to frequent money printing and QE, believing that long-term balance sheet expansion only inflates financial assets and benefits Wall Street billionaires, while ordinary people don’t see any benefits. In the future, the Fed should gradually shrink the balance sheet, exit unnecessary activities, and avoid overstepping into fiscal matters. It should honestly return to its core responsibilities of managing inflation and currency. Moreover, the economy’s strong foundation can withstand this, providing space to gradually reduce holdings, prioritizing cutting excess mortgage bonds, with a gentle pace that won’t cause a market panic or crash.
On interest rates, he didn’t explicitly promise immediate rate cuts, but his attitude clearly leans toward easing. He specifically distanced himself from being forced to cut rates by Trump, maintaining his independence, and pointed out that rate cuts would benefit the real economy, unlike blind balance sheet expansion that only feeds capital markets. Plus, with AI’s long-term productivity gains and inflation suppression, there is room for future rate cuts.
His approach is actually quite understandable: use balance sheet reduction to tighten the excessive global dollar liquidity, curb inflation risks, and free up space to cut rates to support the domestic economy. No longer acting as an unlimited global central bank that endlessly supplies liquidity worldwide, he aims to tighten the monetary reins, prioritizing the U.S. economy. This is precisely the implementation of Trump’s “Great America First” strategy in monetary policy.