# Fed Chair Warsh just embraced monetarism

> Kevin Warsh's recent statements reveal the Federal Reserve is shifting toward monetarist economic thinking after decades of rejection.
- Title: Fed Chair Warsh just embraced monetarism · Fortune | Shortify
- Summary: Kevin Warsh's recent statements reveal the Federal Reserve is shifting toward monetarist economic thinking after decades of rejection. The Federal Reserve is…
- Keywords: federal reserve, kevin warsh, monetarism, monetary policy, money supply, inflation, jerome powell, milton friedman, keynesian economics, fed funds rate, economic doctrine, Fed
- Source: Fortune — https://fortune.com/2026/09/18/kevin-warsh-federal-reserve-what-is-monetarism
- Author: Steve H. Hanke
- Read time: 2 min
- Topics: federal reserve, kevin warsh, monetarism, monetary policy, money supply, inflation, jerome powell, milton friedman, keynesian economics, fed funds rate, economic doctrine
## Warsh reveals monetarist shift
Federal Reserve Chair Kevin Warsh has signaled a dramatic change in Fed policy by embracing monetarism, a doctrine that emphasizes money supply as the primary driver of inflation and economic activity.
## What is monetarism exactly
Monetarism holds that money supply directly influences asset prices, economic activity, and inflation. It argues monetary policy should target the rate of money growth rather than other economic measures.
## Mainstream economics rejected it
For decades, monetarism fell out of fashion in academia and at the Fed. Most economists now use Keynesian models that exclude money and banking from their analysis of inflation and economic activity.
## This explains inflation forecasts
Monetarists predicted the post-COVID inflation surge that mainstream economists missed. By ignoring money supply, conventional models failed to anticipate the burst of inflation that followed pandemic spending.
## Warsh signals change at Jackson Hole
In August, Warsh first hinted at monetarist thinking at the Fed's Jackson Hole Symposium, stating that changes in money supply affect economic activity and inflation.
## Price changes versus inflation
Warsh distinguished between relative price changes like energy or food costs and overall inflation. The Fed cannot control individual prices but must prevent them from cascading into broader price increases.
## Fed ignores short-term noise
Warsh said recent CPI data did not drive the Fed's rate decision because datapoints are noisy. What matters is the inflation trend, which remains too high.

> Datapoints are noisy
## Neutral rate concept rejected
Warsh dismissed the Wicksellian neutral rate concept as academically interesting but impractical for policy. Monetarists argue money growth rates provide a clearer guide than abstract equilibrium interest rates.
## Money growth shows real conditions
Broad money growth of six to eight percent over the past six to nine months is too high, Warsh implied. To hit the Fed's two percent inflation target, money growth should fall to around six percent.
## A seismic shift for the Fed
Warsh is gaining confidence articulating a monetarist framework after a shaky start. This represents a fundamental change in how the Federal Reserve understands and manages the economy.
## Key takeaway

The Federal Reserve is adopting monetarism, which focuses on money supply as the key driver of inflation and economic activity, marking a dramatic departure from the Keynesian models that have dominated for decades.