Fed Chair Kevin Warsh wants monetary aggregates treated as critical inputs for forecasting inflation, an approach most central bankers shelved in the 1980s. The shift would tie Fed policy more tightly to the money supply metric that macro-sensitive crypto traders already watch. It also points toward more skepticism of future quantitative easing.
Roughly two and a half months into the job, Kevin Warsh is telegraphing a philosophical overhaul of the Federal Reserve that hasn't been seriously attempted in decades: a return to monetarism. He took over from Jerome Powell on May 15, and he is not proposing the full Milton Friedman playbook — but something close enough to make bond traders nervous.
Warsh wants money supply back in the inflation forecast
In an essay titled "Money Matters," Warsh lays out the case for what he calls a softer form of monetarism. He is not asking the Fed to target a fixed growth rate for the money supply the way Friedman once advocated; instead, he argues that monetary aggregates — measures of how much money circulates in the economy — should be treated as critical inputs for forecasting inflation.
His language suggests he intends to be aggressive on price stability. Warsh called inflation an "unfair burden" at the ECB forum in Sintra, Portugal on July 1.
Why central bankers abandoned the tool
The tension is genuine, because monetarism fell out of favor for good reasons. On an FT Unhedged episode that aired July 29, hosts Robert Armstrong and Brendan Greeley noted that the relationship between money supply and inflation became unreliable as financial innovation made it harder to even define money, a point related analysis from Hudson Bay Capital underscores on money velocity.
Warsh's softer version acknowledges that M2 and other aggregates aren't perfect predictors. But he argues that ignoring them completely, as the Powell-era Fed largely did, left a blind spot that contributed to the post-pandemic inflation surge.
A narrow confirmation and a $7 trillion balance sheet
President Trump nominated Warsh on January 30, 2026, and the Senate confirmed him on May 13 by a narrow 54-45 vote. He served as a Fed governor during the 2008 financial crisis, has called for a regime change at the institution, and inherits a balance sheet still north of $7 trillion that aggressive quantitative tightening under Powell couldn't meaningfully shrink.
What it means for crypto
Bitcoin and Ethereum have increasingly traded in correlation with macro liquidity conditions over the past several years. When the money supply expands, risk assets tend to rally; when it contracts, they tend to suffer.
Therefore a chair who governs by the premise that inflation is always and everywhere a monetary phenomenon is likely to be more hawkish about balance sheet expansion and more skeptical of future quantitative easing — bearish for the money-printing narrative that fueled Bitcoin's rally in 2020 and 2021. The last serious attempt came under Paul Volcker in the early 1980s, which crushed inflation but also induced a severe recession and sent interest rates above 20%.
Source: Crypto Briefing
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