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S E E D E D C O N T E N T
So Kevin Warsh will be the next Fed chair. The silver lining to his appointment is that he shouldn't be able to do much damage, although with one big caveat (see below). The Fed is a republic, not a dictatorship; key decisions are made by a committee in which the chairperson has only one vote. Fed chairs can only drive policy through persuasion — and Warsh lacks the intellectual and moral credibility to be effective on that score. But God help us if we enter a crisis that requires decisive Fed leadership, the kind Fed chair Ben Bernanke showed during the financial crisis, or Jay Powell is now showing against Trump's attacks.
Absent a crisis, my prediction is that the majority of Warsh's colleagues will largely ignore him, albeit without expressing their contempt openly. Even a coalition among the Trump appointees to the Board of Governors - Warsh, Bowman and Miran - won't be enough to overturn the responsible monetary policy stewardship of the other governors.
But that's a low bar, and it may be lower than is generally appreciated. For while I don't think Warsh will do too much damage to monetary policy, he, along with his fellow Trumper Michelle Bowman, the vice chair for financial supervision, may well eviscerate the Fed's role as a financial regulator.
As I write this, many media reports are describing Warsh as a monetary hawk. That's a category error. Warsh is a political animal. He calls for tight money and opposes any attempt to boost the economy when Democrats hold the White House . Like all Trumpers, he has been all for lower interest rates since November 2024.
Depressingly, some Democratic-leaning economists are stepping up to reassure us about Warsh's qualifications. This is reminiscent of the way many economists rallied around the selection of Kevin Hassett as chair of the Council of Economic Advisers in 2017, although he was an obviously ludicrous hack. Since then Hassett has outperformed my expectations, revealing himself to be such an outrageous sycophant that even Trump realized that it would be a PR and financial disaster to nominate him as Fed chair.
Independent economists who don't feel the need to maintain good relations with the corridors of power are being quite forthright on the Warsh nomination. Here are a couple of reactions from my feed:
What lies behind this contempt? Warsh's most notable role in policy debate came in the years immediately following the global financial crisis, when he was a member of the Federal Reserve Board who argued strenuously against the Fed's efforts to boost the economy. As I noted at the time, his arguments were confused and incoherent, but he implied (without saying so in clear language) that the Fed's actions would be inflationary despite the depressed state of the economy.
He was completely wrong about that. Now, everyone makes bad predictions. But when you do, you're supposed to admit your mistakes and learn from them. Warsh never did that. Instead, he kept inventing new reasons to call for higher interest rates — notably a bizarre claim that low rates were hurting business investment — as long as a Democrat was president.
So how does someone with that record end up in what is normally the most important economic post in the world (although I suspect that Warsh will be one of the least influential Fed chairs in history)? I would list five reasons, in no particular order.
First, Warsh married into great wealth. Specifically, he married the daughter of Ronald Lauder, the cosmetics billionaire — who, bizarrely, is a key figure behind Donald Trump's obsession with Greenland.
Second, he has always been very good at ingratiating himself with influential people.
Third, he's an effective bullshitter. Sorry for the technical language, but I can't find another way to say it. Listen to Warsh on economic policy, and he throws around a lot of big words that presumably sound impressive to people who don't know anything about the subject. But there's no coherent argument behind the verbiage.
Fourth, he's a Republican loyalist, who always wants to slam the economic brakes when Democrats are in power and step on the gas when Republicans rule.
Fifth, as I highlighted in the Truth Social post screenshotted at the top of this piece, Donald Trump thinks he looks the part.
It's a humiliating day for the Federal Reserve, which has always prided itself on its professionalism and has been hugely respected around the world. But even the Fed can't insulate itself from the derangement sweeping America.
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Very Quick Note on Trump's Pick to Chair the Fed: Kevin Warsh
Did anyone read what this guy's writings?
Jared Bernstein
I could see a worse choice for Fed chair than Kevin Warsh. He’s a former governor who was there during the financial crisis when Bernanke was chair. He’s not a pick out of left right field. The markets know him, for what that’s worth. He’s not who I would have picked if I had my choice of anyone, but definitely could have been worse given the actual choice set. Hard to tell, but there’s a good chance he’ll be considerably more independent from Trump than some of the other choices, even if that’s not how he’s sold himself. As I stress at the end, everyone, myself included, should give him a chance to see where he takes this gig.
And remember, when it comes to voting on interest rates, he’s one of 12 votes. The chair’s vote gets no extra weight.
All that said, here’s the thing. It really seems like nobody over there in the White House read anything the man wrote!
Obviously, he sold himself to Trump as someone who would do the president’s bidding re low interest rates, with monetary policy as endless stimulus to give Trump the lowest rates and the fastest growth. And it’s a sign of his political prowess—which is highly praised, btw; he’s known more for that than econ prowess—that he convinced Trump he’s that guy.
But the Fed that Warsh wants is very different from the one Trump wants.
He’s a stone-cold hard money guy, who would like the Fed to do much less with its balance sheet, to significantly reduce its bond-buying, at least in normal times, and to upweight the inflation mandate relative to the employment mandate.
Read this speech . He’s long known to be highly critical of the Fed’s buying longer-maturity U.S. Treasuries (“quantitative easing”), at least outside of full-on crises. He forcefully argues—though he’s also prone to word salad and unintelligible vagaries: “Kant, Locke and Rousseau, none conceived of a central bank like ours;” who says stuff like that!?—that the Fed’s bond-buying supports irresponsible, damagingly expansionary fiscal policy. To be clear, he’s not the only one who thinks that, but I’ll tell you someone who decidedly doesn’t! That would be the guy who just nominated him.
He’s also, incorrectly in my view, hostile to foundational Fed practices: “I do not find the current Fed policy of ‘data dependence’ of much real value. We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts-- subject to significant, subsequent revision-- is evidence of false precision and analytic complacency.”
That may sound good but I’d call it mostly nonsense. The Fed is not data- point driven. Powell’s said this many times. They don’t react to data outliers. They’re data- trend driven, which is exactly what you want them to be, given the vast uncertainties re our limited understanding of the economy and its reaction to monetary policy actions.
That’s what I find missing most from Warsh’s writings: a humility about our limited understanding. You really don’t want a Fed chair who thinks they know more than they do, are impenetrable to evidence that doesn’t fit their model, and are therefore too uninterested in what’s unfolding before them, unwilling to incorporate new information, change course, update priors. I definitely don’t know Warsh well enough to describe him that way, but it’s something I’ll be watching for, assuming he’s confirmed, on which I’d put high odds.
Of course, we should all be open minded and give the man a chance to show what he’s about in one of the world’s truly challenging jobs, one that’s a lot more challenging in the age of Trump. For all the posturing and confusing writings, I still give him a clean slate as he gets started, wish him the best, and will be pulling for him to make the right calls.
But he’s still a weird choice, one that suggests no one vetted his writings!