“Stay out of elected politics. Don’t get pulled into elected politics,” he warned.

In fact, Powell and Fed officials overall have long avoided politics, though the Trump administration’s unprecedented pressure has drawn the Fed into a political maelstrom over central bank independence.

In the same breath, he encouraged the next Fed chair to build relationships in Congress, which he called the central bank’s “window into democratic accountability.”

“It’s not a passive burden for us to go to Congress and ​talk to people, it’s an affirmative regular obligation,” said Powell. “If you want democratic legitimacy, you earn it by your interactions with our elected overseers.” 

He also urged his successor not to be quick to judge the Fed staff, whom he described as the “most dedicated to the public wellbeing.” 

“It’s easy to criticize government institutions in so many ways,” Powell said. “I will tell whoever it is, you’re about to meet the most qualified group of people you not only have ever worked with, you will ever work with.” 

On Friday, President Donald Trump named Kevin Warsh as Powell’s replacement when his term expires in May, and it’s unclear if he will heed the Fed chair’s advice. 

Warsh has been critical of Powell’s “wait and see” approach to cutting interest rates and publicly praised Trump for his “pro-growth policies” while seeing the Fed as a major obstacle to that. 

Warsh, 55, was the youngest governor in Fed history when he was appointed in 2006. But he resigned in 2011 because he opposed the Fed’s attempt to boost the economy’s recovery from the Great Recession with a second round of asset purchases. 

Warsh gave a glimpse of how he will lead the central bank in an op-ed in The Wall Street Journal in November, where he outlined four changes he wants the Fed to make. 

Shrink the balance sheet

A longtime inflation hawk, Warsh wrote that the Fed should reflect on the “great mistakes” that led to peak inflation at 9.1% in June 2022. 

“Inflation is a choice, and the Fed’s track record under Chairman Jerome Powell is one of unwise choices,” he wrote. “Inflation is caused when government spends too much and prints too much. Money on Wall Street is too easy, and credit on Main Street is too tight.” 

He called on the Fed to shrink its “bloated balance sheet,” and lower interest rates to support households and small and medium-sized businesses.

Forget stagflation, focus on the benefits of AI

Warsh urged the Fed to disregard its stagflation forecast, “as if subpar growth and inflation 40% above target is the best that can be done.” 

“AI will be a significant disinflationary force, increasing productivity and bolstering American competitiveness,” he wrote, adding that increased productivity will bring up take-home wages. “A 1-percentage-point increase in annual productivity growth would double standards of living within a single generation.”

Support smaller banks 

Warsh supports Fed Governor Michelle Bowman’s push for a new regulatory framework, which he believes will help small and medium-sized banks.

“The Fed’s rules and regulations have systematically disadvantaged small and medium-size banks, which has slowed the flow of credit to the real economy,” he said.

Disregard global cooperation  

Warsh said that former Fed Chair Janet Yellen and Powell spent too much time negotiating with global regulators. Instead, the Fed should focus its efforts on making the U.S. “the best place for the world’s banks to do business,” and spur more lending. 

“In my view, the Basel endgame isn’t America’s endgame,” he wrote.