Washington, July 16, 2026
Federal Reserve Chairman Kevin Warsh has enlisted former Reserve Bank of India Governor Raghuram Rajan to help review the US central bank’s balance sheet, as part of a sweeping reform programme aimed at reshaping monetary policymaking after years of elevated inflation.
The appointment drew praise from Senate Banking Committee Chairman Tim Scott during Warsh’s first semiannual monetary policy hearing before Congress on Wednesday (local time), where the Republican lawmaker singled out Rajan’s inclusion as evidence that the new Fed chief was encouraging competing ideas rather than institutional consensus.
Scott said he welcomed the composition of the Federal Reserve’s newly established working groups, particularly the balance sheet task force.
“It seems like you have Jeremy Stein… as well as the former governor of the Indian Central Bank, Mr Rajan. They have very nicely put competing approaches and philosophies about the balance sheet, but if you’re going to be intellectually honest, you need to have a serious debate about what direction to go and, frankly, how to get there,” Scott said.
Warsh did not elaborate specifically on Rajan’s role but defended the creation of five independent task forces, saying they were intended to inject fresh thinking into the Federal Reserve after more than five years of inflation running above the central bank’s target.
“I reached out to 15 people who I have known and trusted with a diversity of views,” Warsh said. “It’s a move towards transparency and new ideas.”
He said the groups would examine five core areas of the Fed’s work: communications, balance sheet policy, the use of economic data, productivity and jobs, and the inflation framework.
“Our purpose here is to make better decisions in the conduct of monetary policy and put these years of high inflation behind us,” Warsh told senators.
Scott said unwinding the Federal Reserve’s balance sheet required careful judgement and welcomed the decision to include economists with differing schools of thought.
“I’m really excited about what you’re doing there, and I look forward to hearing how that works out for you, for the Federal Reserve and more importantly, for the American people,” he said. “Unwinding a balance sheet, the size that we have today is going to take a deliberate effort that will have to be paced properly, not to create instability and volatility in our markets.”
Responding to questions later in the hearing, Warsh said the balance sheet review would not be a symbolic exercise.
“My general view is… the balance sheet should be as small as practicable to conduct operations,” he said, adding that the central bank should be “very open-minded to changes” while ensuring financial markets had sufficient time to adjust to any reforms.
Warsh also revealed that the task forces had been given six months to complete their work, with preliminary findings expected as early as September and final recommendations by the end of the year. He said the groups were advisory and that policy decisions would remain with the Federal Open Market Committee.
Rajan, who served as Governor of the Reserve Bank of India from 2013 to 2016, is internationally recognised for his work on financial stability and monetary policy. Before leading India’s central bank, he was Chief Economist and Director of Research at the International Monetary Fund and has remained an influential voice on global macroeconomic issues.
His inclusion in the Federal Reserve’s balance sheet review comes as the US central bank reassesses its monetary policy framework after the pandemic-era expansion of its nearly $9 trillion balance sheet and the subsequent effort to reduce it while bringing inflation back towards its long-term target.(Agency)
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