Kevin Warsh’s internal opponents fire away

Kevin Warsh took office as Chair of the Federal Reserve on Friday with a message of reform for the central bank. To get a sense of how hard this job will be, consider that two members of the ancien regime fired warning shots even before Mr. Warsh took the oath of office.

First, Fed Governor Michael Barr openly declared his opposition to reducing the Fed’s $6.7 trillion balance sheet. “I think shrinking the balance sheet is the wrong objective, and many of the proposals to meet this objective would undermine bank resilience, impede money market functioning, and, ultimately, threaten financial stability,” Mr. Barr said on May 14 at New York University.

That last point leaps out since the most recent threat to financial stability came on Mr. Barr’s watch as Fed vice chair for supervision. He missed the interest-rate risk—the most basic of banking risks—to Silicon Valley Bank and Signature Bank. Mr. Barr resigned as the supervision vice chair last year ahead of his likely removal by President Trump.

Mr. Barr’s balance-sheet arguments aren’t novel and are best addressed another day. What’s notable about his speech is that he knows that reducing the Fed balance sheet, which exploded after the 2008 financial panic, is one of Mr. Warsh’s stated priorities. Mr. Barr, a protege of Sen. Elizabeth Warren, is declaring himself as an internal opponent on the Fed board even before the new Chairman has a chance to settle into the job.

Next up was Fed Governor Christopher Waller, who said in a speech on the day of Mr. Warsh’s confirmation that he no longer favors cutting interest rates. “I can no longer rule out rate hikes further down the road if inflation does not abate soon,” Mr. Waller said regarding the impact of the Iran oil shock on prices.

A fed-funds rate hike may be needed in the future, though the next Federal Open Market Committee meeting isn’t until June 16. But what’s notable here is Mr. Waller’s switcheroo. As recently as January he dissented in favor of a rate cut on grounds of weakness in the labor market. In April he voted for a FOMC statement that contained an “easing bias.” This was when financial conditions were hardly tight.

In January Mr. Waller was competing against Mr. Warsh for the Fed chairmanship, and President Trump was calling for a rate cut. With the labor market little changed, Mr. Waller now rules out a rate cut after Mr. Warsh beat him out for the job. Mr. Warsh can be forgiven for wondering if Mr. Waller is declaring his doubts about the new Chair and signaling to the press to watch his space.

You’d think for the good of the institution—you might even say for its independence—that Fed governors would refrain from boxing in a new Chairman. But we live in the age of performative central banking. At least Mr. Warsh is finding out who his internal opponents are.