Former Reserve Bank of India Governor Raghuram Rajan has been selected to serve on a newly established Federal Reserve task force focused on reviewing the US central bank’s balance sheet. The appointment is part of Federal Reserve Chairman Kevin Warsh’s broader effort to modernize monetary policymaking and strengthen the institution’s approach after years of inflation remaining above its intended target.
The announcement received positive attention during Warsh’s first semiannual monetary policy hearing before the US Congress. Senate Banking Committee Chairman Tim Scott praised the decision to bring Rajan into the panel, highlighting the importance of including experts with diverse economic perspectives. Scott noted that combining different schools of thought would encourage meaningful discussions and lead to stronger policy decisions rather than reinforcing existing institutional views.
Warsh explained that he personally invited a group of 15 respected economists and policy experts with varied viewpoints to participate in five independent working groups. According to him, the objective is to introduce greater transparency, encourage fresh ideas, and improve how the Federal Reserve develops monetary policy. The review comes after several years of elevated inflation that challenged the central bank’s traditional policy framework.
The newly formed task forces will examine five major areas, including communication strategies, balance sheet management, the use of economic data, productivity and employment, and the overall inflation framework. Warsh emphasized that these reviews are designed to help policymakers make more informed decisions while restoring confidence in the Federal Reserve’s long-term strategy.
Scott also stressed that reducing the Federal Reserve’s balance sheet requires a measured approach. He said any effort to shrink the central bank’s holdings must be carefully timed to avoid unnecessary market instability or increased financial volatility. Warsh echoed that view, stating that the balance sheet should eventually become as small as practical while still allowing the Federal Reserve to carry out its responsibilities effectively. He added that any future policy adjustments should provide financial markets with enough time to adapt.
The advisory panels have been given six months to complete their work. Initial findings are expected by September, with final recommendations scheduled for release before the end of the year. While the task forces will offer guidance, Warsh clarified that all official policy decisions will continue to be made by the Federal Open Market Committee.
Rajan, who led the Reserve Bank of India between 2013 and 2016, is widely respected for his expertise in financial stability and monetary policy. His previous leadership roles, including serving as Chief Economist at the International Monetary Fund, have made him a recognized authority on global economic issues. His appointment comes as the Federal Reserve reassesses the management of its balance sheet, which expanded to nearly $9,000 million during the pandemic before the central bank began gradually reducing its holdings while working to control inflation.
