The White House’s siege on the Federal Reserve reached a moment of clarity with the appointment of Fed Chair Jerome Powell’s successor, but Donald Trump’s machine has not stopped. The Justice Department’s criminal investigation into alleged wrongdoing in the renovation of the Fed’s buildings continues. The aim is to oust Powell not only from the presidency, but also from the board of the central bank in order to break his resistance to Trump’s line, which demands drastic cuts in interest rates. Trump wants a hot, hot, hot
economy, according to The Wall Street Journal.
The judicial persecution, denounced by Powell as an attempt to impose a monetary policy directed by political pressure or intimidation
, has provoked a bipartisan reaction in the Senate. North Carolina Republican Thom Tillis has pledged to block the approval process for the designated successor to the Fed chair until the case against Powell is closed.
Powell’s successor
Most commentators point to Powell’s reaction — and the support he received even among Republicans — as the turning point forcing Trump to abandon his preferred candidate, Kevin Hassett, his chief economic adviser. Instead, another Kevin was chosen.
Kevin Warsh, 55, is well connected in New York’s financial world and Republican circles. He is married to Jane Lauder, heiress to the Estée Lauder Companies cosmetics empire. His father-in-law, Ronald Lauder, head of the World Jewish Congress since 2007, held government positions during the Ronald Reagan administration in the 1980s, as deputy assistant to the secretary of defence and as ambassador to Vienna. Warsh entered Wall Street under the aegis of the investment bank Morgan Stanley, where he became executive director for mergers and acquisitions. At the age of 32, he was chosen as special assistant for economic policy to President George W. Bush, who appointed him to the board of the Federal Reserve at the age of 36. During the financial crisis, he acted as a liaison between Wall Street and Fed Chairman Ben Bernanke, who, in his memoirs, acknowledged his invaluable
role for his sound judgement and many contacts on Wall Street
.
In November 2010, grappling with the damage caused by the recession, the Fed launched a new round of quantitative easing, purchasing $600 billion worth of Treasury securities. Warsh, although criticising it, ultimately approved the operation but expressed his reservations in an article in The Wall Street Journal. In 2011, he resigned. Bernanke denied any obvious link between Warsh’s dissent and his resignation [The Courage to Act, 2015]. That dissent earned Warsh the label of ferocious hawk
. Critics wonder why he should now become Trump’s monetary dove
. Martin Wolf in the Financial Times describes him as a confusing, perhaps confused, figure
.
Warsh’s line
There are two reasons why Warsh is close to the White House. The first is his harsh criticism of the Fed, presented to the Group of Thirty in Washington last April and reiterated in an article in the WSJ that same month. The crux of his argument is that the Fed, during the financial crisis and subsequent crises, has unduly expanded its powers. The Fed has acted more as a general-purpose agency than a narrow central bank. Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory mandate, price stability
. This has led to systematic errors in the conduct of macroeconomic policy
and has also contributed to an explosion of federal spending
. Warsh draws a sharp boundary between monetary policy and regulatory policy, blaming the central bank for the erosion of its autonomy: independence in the banking field undermines monetary independence, and the use of powers that belong to the Treasury undermines its operational independence. The accusation is clever and challenges the separation of powers to fence monetary power into its restricted
backyard, to the benefit of an imperial presidency that overflows into the domains of other powers, including the restricted
power of interest rates.
The second line of argument touches on inflation and rates. Warsh extols the artificial intelligence boom as the most productivity-enhancing wave of our lifetimes — past, present, and future
. AI and deregulation will give such a boost to the productivity of the system that inflationary forces will be crushed and there will be no need for Fed rates to subdue them. Warsh compares this momentum to the first Internet boom of the 1990s. At that time, productivity growth led Fed Chairman Alan Greenspan to resist pressure to raise rates. This thesis relies on productivity to combat inflation, rather than the costly weapon of interest rates, just as the Laffer Curve claimed to solve the public deficit in the 1980s by lowering taxes. It is true that increased productivity slowed inflation in the late 1990s, but the legend ends there. Jason Furman, who chaired President Obama’s economic advisers, recently recalled that Greenspan’s famous speech in May 1999 marked the beginning of a steady rise in inflation
and, the following month, the Fed had to raise rates.
Productivity sets conflicting forces in motion, and the result is not as linear as magical thinking might suggest. Warsh’s first problem will be to convince the Fed after having disparaged it. Meanwhile, the central bank has renewed its ranks, appointing eleven of the nineteen members of the FOMC, the body that decides on interest rates, and the twelve deputy heads of the regional Fed banks.
Calculating geopolitical risk
On the other side of the Atlantic, the acceleration brought about by Trump’s offensive has reignited the debate on all fronts. European monetary power is fully involved. Christine Lagarde spoke at the Munich Security Conference on how to prepare for geo-economic fragmentation
. A sectorally differentiated calculation of geopolitical risk helps to better understand Lagarde’s disagreement with the image of the rupture
of the old order and her preference for a transition to strategic autonomy
. Caution stems not only from the reduced certainty of a secure deterrence umbrella, but also from lags in various industrial sectors.
The ECB, Lagarde says, calculates that a sudden halving of supply from geopolitically distant suppliers would reduce manufacturing value added by 2-3% — with the impact concentrated in electrical equipment, chemicals, and electronics
. For Lagarde, this means that if we pursue independence in sectors where we are lagging far behind, we risk imposing costs that erode competitiveness downstream. For example, pursuing full autonomy in chip making could produce [...] firms unable to compete globally
. On the other hand, in some critical sectors
, despite the significant lag, we need to build domestic capacity, even when it is temporarily more expensive. In 2023, the US conducted 114 orbital launches. Europe conducted three
. According to Lagarde, broad-brush strategies will not work [...]. We need a targeted approach: understanding our strengths and weaknesses at a granular level and evaluating costs and benefits
.
International euro and digital euro
Faced with these dilemmas, the ECB intends to activate three or four accelerators. First, anticipating tensions in the financial markets, it is raising a shield over euro-denominated securities held in the rest of the world. Every foreign central bank will have continuous access
to liquidity in euros against high-quality collateral. The aim is to prevent a sell-off of euro-denominated securities. But there is more: We move from a regional to a global perimeter
, says Lagarde, making the ECB a lender of last resort for central banks worldwide
. The expression is bold. Vice President Luis de Guindos is more cautious. Interviewed by Politico, he states that to enhance the international role of the euro, what will be key is doing our homework in the European Union: completing the Single Market, the capital markets union, the banking union, and the simplification programmes put forward by the European Commission to reduce unnecessary bureaucratic burdens. These are the kind of things that we have to do. Swap lines and repo lines are only a part of that, and I would say that it’s not the most relevant one
.
Piero Cipollone, of the ECB Executive Board, announced that legislation on the digital euro is expected to be approved by the end of the year, with its launch scheduled for mid-2029. The crisis in Atlantic relations makes it necessary to find alternatives to the US oligopoly of digital payment systems. The digital euro has strategic significance
, Cipollone tells the Süddeutsche Zeitung. Think of the judges of the International Criminal Court who were sanctioned by the United States simply for doing their job. Their US cards were cut off. [...] Today US corporations own critical parts of the infrastructure and, in theory, could cut us off. With a European infrastructure, we would own the ‘rails’. If one provider dropped out, Europe would have enough alternatives left
.
It should be noted that digital currency not only means the completion of monetary sovereignty, but also an increase in the velocity of money circulation.
28th regime and EU-Bonds
The 28th regime proposed by the Letta report is strongly endorsed by German ECB Executive Board member Isabel Schnabel as the best solution to address the main cause of Europe’s relative weakness compared to the United States. Europe’s problem is a lack of scale
, she argues, and the internal barriers that prevent companies from exploiting the continental space of the single market are the cause. In the US, companies with more than 250 employees account for 60% of total employment, while in many areas of Europe the figure is closer to 20%. Of all the proposals to solve the central problem, the most powerful idea is the creation of a 28th regime: a unified European corporate framework open to firms of all sizes and sectors
. The 28th regime, in which every company would be a European company, must have a single uniform framework across the EU, and not 27 versions. The purpose is to remove unnecessary legal fragmentation and uncertainty for firms that wish to expand across borders, and to make European companies attractive to global venture capital, private equity, and institutional investors
.
Among the ECB’s latest moves, the most important and unexpected is that of Bundesbank President Joachim Nagel, who is in favour of creating a common European, highly liquid, euro-wide benchmark safe asset
. The aim is to make Europe attractive
, which means to attract investors from outside
. Limits and conditions must be set. The issuance of a common asset would only support specific purposes
. It should be accompanied by a decline in national debt. The European payment system outside the Mastercard/Visa duopoly and the development of the capital market must be guaranteed. On the internationalised euro, Nagel seems closer to de Guindos than to Lagarde: I am comfortable with gradual progress on the international role of the euro, as long as it’s moving in the right direction
.
Changing of the guard
The acceleration of these programmes is accompanied by an acceleration in the replacement of mandates at the ECB. The president of the Bank of France, François Villeroy de Galhau, has announced his early departure from office. In addition, according to the Financial Times, ECB President Christine Lagarde might have similar plans. The interpretation circulating is that the aim is to pre-empt a possible victory for the sovereignists in France and prevent any tampering with monetary power, by anticipating the renewal of the leadership. However, this may also imply an entanglement between monetary power and French national politics.
Lagarde’s early resignation, however, is also stirring things up in other capitals, particularly Berlin and the Bundesbank leadership, with the two figures we mentioned, Nagel and Schnabel, making themselves available to take over the helm of the ECB. These are interesting times for the Union.
Lotta Comunista, February 2026