- Key Insight: Former Fed Gov. Kevin Warsh's selection as the next Federal Reserve chair would put a familiar face atop the central bank, but the hawkish monetary policy stances he has advocated for in the past — contrasted with the accommodative policy the president prefers and that he now supports — muddy the outlook for the Fed under his leadership.
- Expert Quote: "The president has been most outspoken about the need for easier money, lower rates, and I would think at least in the near term, Kevin Warsh will oblige." — Mark Spindel, Chief Investment Officer at Potomac River Capital.
- Forward Look: Senate Banking Committee member Thom Tillis, R-N.C., has said he will oppose Warsh's nomination until the Justice Department concludes its investigation into Fed Chair Jerome Powell, though the Senate Banking Committee could likely advance his nomination even without Tillis' support.
After years of speculation, the fog surrounding who President Donald Trump would select to replace outgoing Federal Reserve Chair Jerome Powell cleared Friday morning: Former Fed Gov. Kevin Warsh will be nominated as the next Fed chair.
Warsh, a former investment banker who served on the Fed board from 2006 to 2011, was not a surprise choice to lead the central bank, having been
Trade groups representing financial institutions welcomed Trump's pick, while some economists expressed concern about what it could mean for the Federal Reserve's independence and its dual mandate. Some lawmakers have also signaled opposition to Warsh's nomination, raising questions about his path to confirmation unless the case against Powell is resolved first.
Since rising to the top as a potential replacement for Powell, Warsh has made a number of public appearances in which he lambasted the central bank and called for institutional changes inside of the Fed.
"That's not about Putin and the pandemic, that's about the Federal Reserve," he said. "The central bank can hit any price level that it wants, any inflation level that it wants. We might not like how they do it, but the idea that they should be blaming someone else strikes me as quite antithetical to good economic history. "In that same podcast, Warsh said that the central bank is in part responsible for government spending.
"Irresponsibility runs in both directions," Warsh said. "The connection between fiscal spending, what Congress does and monetary printing, that's what the central bank does. When one of them is irresponsible, the other one tends to be irresponsible too."
These comments and others suggested Warsh once held hawkish views, though he now appears to be adjusting his stance to align more closely with the president, raising questions about whether his approach will hold over the long term.
Hawk or Dove?
While Warsh has been dubbed a monetary policy "hawk" in the past, a term describing one who, all other things being equal, prefers interest rates to be higher — a "dove," by contrast, would prefer lower rates. But whatever his underlying views may have once been, he has likely amended those views to comport with Trump's longstanding preference for low interest rates. This in turn might spur cheaper borrowing and increase consumer spending, which in turn could lead to higher inflation.
Mark Spindel, senior advisor at F/m investments and chief investment officer at Potomac River Capital, noted that the president has been outspoken about "easier money, lower rates," and he expects Warsh to oblige in the near term.
"I think the President is going to get what he wants: a good-looking Fed Chair," Spindel added.
Ryan Young, senior economist at Competitive Enterprise Institute, said that Warsh throughout the past couple of years has "really wanted the job," adding that he may have changed his hawkish views because of that — but noted that he may change his views again.
"Is Warsh going to have that kind of Thomas Beckett effect, where the president appoints him believing that Warsh will do what the president wants and then will Warsh go around and rediscover his earlier inflation hawk tendencies and resist the urge to cut interest rates to 1%?" Young asked rhetorically.
Despite that risk, trade groups representing banks and other financial institutions applauded Trump's pick to lead the Fed Friday, saying the nomination would create a better lending environment for consumers.
The Independent Community Bankers of America, American Bankers Association, Consumer Bankers Association and Mortgage Bankers Association all came out in support of Trump's pick Friday.
"In selecting Warsh, President Trump has chosen an experienced and tested policymaker who previously served at the Fed during one of its most challenging moments," said Rob Nichols, CEO of ABA, in a written statement. "Having worked alongside him in the Bush administration, I know he has a deep understanding of monetary policy, markets and the important role the nation's banks play in the economy."
Regulatory expectations
When it comes to regulating the financial system, Fed watchers expect Warsh to institute closer ties with the Treasury Department. Rodney Ramcharan, professor of finance and business economics at the University of Southern California's Marshall School of Business, predicts that "a lot of deference will be given to the Treasury" on the front of regulating banks and crypto.
"We can imagine that the deregulation wave that began will continue," he said. "I think we just need to be mindful of where that could lead to again."
Jeremy Kress, an associate professor of business law at the University of Michigan, added that Warsh in the past has "disclaimed Fed independence on bank regulation and supervision."
"I would expect Warsh to defer to Secretary Bessent and Vice Chair [for Supervision Michelle] Bowman's aggressive deregulatory agenda, even if he weren't already so inclined," Kress added.
Regarding crypto, Warsh has been a proponent of a central bank digital currency. Some economists see this as troublesome. John Berlau, director of finance policy at Competitive Enterprise Institute, said in a statement that Warsh's support for a central bank digital currency, or CBDC, warrants scrutiny.
"CBDCs are dangerous because they could crowd out innovation from the private sector, make it easier to pursue inflationary policy, and, most importantly, be used for engaging in digital surveillance on the financial transactions of innocent American citizens," Berlau said.
Will Warsh cruise to confirmation?
A number of lawmakers said they would delay confirming anyone to the Fed until the threat of
Sen. Thom Tillis, R-N.C., a critical vote on the Senate Banking Committee, reiterated Friday he would block any Fed nomination until the Justice Department investigation into Powell ends.
"This process of prosecution has to end before I vote to confirm anybody," he said.
Sen. Elizabeth Warren, D-Mass., ranking member of the Senate Banking Committee, called on Republicans to pressure the administration to drop charges against Powell and Fed Gov. Lisa Cook.
"No Republican purporting to care about Fed independence should agree to move forward with this nomination until Trump drops his witch hunts of the current Chairman of the Federal Reserve and Governor Lisa Cook," she said in a statement.
Spindel said that the White House, having selected its next Fed chair, might elect to back off its inquiries into Powell and likely obtain Tillis' vote.
"[Tillis and Warren] want the resolution to this criminal investigation," Spindel said. "I think, with a new nominee, maybe the president backs off of what would essentially be a kind of lame duck chair now in Jay Powell."
Despite some simmering pushback, Ian Katz, managing partner at Capital Alpha Partners, predicts that Warsh has a high likelihood of being confirmed. For one, the White House could take steps to wind down its inquiry into the Fed and obtain Tillis' vote through concession.
Failing that, Tillis' "no" vote in committee — assuming all other members vote along party lines — would create a 12-12 tie in the committee. Either the Senate majority or minority leader could then issue a discharge motion to bypass the committee with a simple majority vote. If three other Republicans are as firm as Tillis has been in opposing the White House's Fed nominations, such a discharge motion could fail, but Katz said there are more and more likely scenarios where Warsh is ultimately confirmed than where his nomination fails.
"Overall, I'd say 60-65% chance that he gets confirmed, taking everything into account, not just Tillis," Katz said. "So taking all of those into account, it looks more likely to me that he gets confirmed. I don't have a strong feeling about how exactly it plays out, but one of those scenarios happening seems more likely than him not getting through."
Claire Williams contributed to this report.
