Will Kevin Warsh ignore the employment part of the US Federal Reserve’s mandate?

As his nomination to be chair of the Federal Reserve heads toward confirmation after clearing the Senate Banking Committee Wednesday, it’s worth focusing on an equally troubling gap in his public record: his near silence on anything related to employment.

Warsh gave a perfunctory nod to the Federal Reserve’s dual mandate—price stability and maximum employment—in last week’s testimony, but while he extensively discussed the former, he essentially ignored the latter.

The two goals, enshrined into law in 1977, are coequal under the statute, but in practice, the Fed has historically given precedence to price stability. As Fed Chair Paul Volcker put it in 1981: “We will not be successful, in my opinion, in pursuing a full employment policy unless we take care of the inflation side of the equation.”

Over the past 20 years, the Fed has moved away from that inflation-first view, building a more rigorous understanding of what maximum employment means and how to pursue it.

As he is when it comes to much of what the Fed does, Warsh is a vocal critic of the Fed’s thinking on maximum employment. In a speech he gave a year ago, he charged that, by describing maximum employment “as a broad-based and inclusive goal,” the Fed had “redefined its legislative remit” and signalled “a willingness to accept higher inflation so that certain groups would achieve higher rates of employment.” That reading gets both the Fed and the labour market wrong.

“Broad-based and inclusive” reflects US labour market dynamics, not a plan to be soft on inflation. The reality of maximum employment is that the last worker hired before inflation heats up does not look like the first.

For example, the African-American unemployment rate is almost always twice the Caucasian unemployment rate—except late in an economic expansion. At the first sign of softening, the gap reopens. Employment rates also differ markedly by gender, class, education and other characteristics.

Acknowledging those patterns is not “mission creep,” as Warsh often asserts. It is simply describing characteristics of the labour market the Fed is charged with maximizing.

When the Fed updated its framework last summer, months after Warsh’s speech, it kept the substance and softened the optics, saying: “Durably achieving maximum employment fosters broad-based economic opportunities and benefits for all Americans.” Warsh has not weighed in on this clarification. In fact, across years of speeches, op-eds and a confirmation hearing, he has never offered his own definition of maximum employment.

In other words: We know what Warsh is against. We don’t know what he’s for.

This is more than word games. We don’t know how Warsh would weigh employment against inflation when they’re in conflict—except that when the Federal Open Market Committee has done it recently, he has objected. Both of the Fed’s cutting cycles in 2024 and 2025 were at least partly a response to softening in the labour market.

When the Fed cut by 50 basis points in September 2024, Warsh said the Fed was “lurching” without a clear rationale, and implied the move could look political before the election.

But the economic rationale was straightforward. The unemployment rate had risen by a half-percentage point in a year, a rare event outside a recession, and the Bureau of Labor Statistics had announced an 800,000 downward revision to employment.

This data came in August, so the Fed had effectively missed a chance to cut in July. The 50-basis-point move in September made up for it. It’s not that hard to follow, if you take the dual mandate seriously.

The framework debate and the cuts of 2024 are sideshows compared to the labour market challenges the Warsh Fed will have to navigate. Labour-supply growth has slowed sharply with low immigration and an ageing population, altering the markers of a ‘good’ labour market.

Warsh has invoked AI to argue that faster productivity will push down inflation and justify lower interest rates, but he has said almost nothing about the employment side—that is, the potential for mass layoffs or structural shifts in the workforce.

What does maximum employment look like when labour supply is shrinking and technology is reprogramming labour demand? We don’t know. And the man about to lead the Fed has shown very little interest in finding out. ©Bloomberg

The author is the chief economist at New Century Advisors and a former Federal Reserve economist.