Jason Furman

That being said, I plan to handle him the same way I've handled the Fed, which is respectfully to disagree when I disagree and explain what I disagree about.

In particular, his desire, as you just said, to dramatically shrink the balance sheet,

would mean selling off a lot of the bonds the Fed holds that would drive up mortgage interest rates.

I don't think we need dramatic interest rate cuts in our economy, but I don't think we need dramatic interest rate increases either.

My guess is in the seat, he'll end up being pragmatic

And some of the ideas that make less sense, like that one, will end up facing reality and being dramatically scaled back when you see what the data says.

But to me, that's going to be the most important test for Warsh.

Two most important tests.

One is, is he independent?

And two, can he change his mind when the data changes?

There's a lot of people in financial markets that think that and a lot of economists disagree with that.

And I guess I'm part of my tribe on this one.

I'll be with the economists, which is I don't think it's distorting the market that much.

The market basically wants interest rates to be where they are now.

That's roughly what's balancing supply and demand, roughly consistent with the inflation rate.

that we want.

And if the Fed dramatically sold off a lot of these assets, we'd get interest rates in a place we'd rather not have them.

The other thing to understand is the Fed has a lot of assets, but it also has an equal set of liabilities.

Those liabilities are bank deposits with the Fed.

They're called reserves.