Kevin Warsh, the newly installed chair of the Federal Reserve, just said something that sounds bureaucratic but carries serious weight: there’s no need to run a “balancing test” in policy evaluation.
In English: the Fed may no longer feel obligated to carefully weigh inflation against employment in every single decision. For anyone holding risk assets, that’s a sentence worth reading twice.
What a balancing test actually means
The Federal Reserve operates under a dual mandate from Congress. Keep prices stable. Keep people employed. For decades, every major policy decision has involved an implicit balancing act between those two goals.
When inflation runs hot, the Fed raises rates, which can hurt employment. When unemployment spikes, the Fed cuts rates, which can stoke inflation. The “balancing test” is essentially the framework for deciding which priority wins in any given moment.
