#WhoIsNextFedChair Here's a rewritten version of the text in a more professional tone:
🚀 Assuming incoming Fed Chair Warsh adopts an inflation-fighting stance, aggressively shrinking the balance sheet and cutting rates to support the real economy, it's crucial to consider the implications of this policy mix. Given the financialization of the US economy, a significant drop in financial markets would likely spill over into the real economy. The reliance on constant refinancing of old debt (approximately 75% of transactions) makes the system vulnerable to balance sheet reduction.
The feasibility of financing trillions in new US debt is uncertain, and potential solutions may involve financial repression. Cutting rates to boost growth may not address inflation risk but rather shift it to the real economy, manifesting as higher consumer prices. This presents a challenging political trade-off.
In a debt-driven economy where GDP growth depends on accumulating more debt, central bank support for debt sustainability is critical for stability. Aggressive policy shifts, particularly with rising interest costs, risk exacerbating stress. If the Warsh scenario unfolds, the US economy may face significant challenges.
