Kevin Warsh was selected by President Donald Trump to become the next US Federal Reserve Chairman. As current Chair, Jerome Powell, is slated to exit the leadership role next May, Warsh should soon be guiding Monetary policy for the US.
Market commentary has largely welcomed the decision as a well-considered choice of an individual with experience and credibility, reassuring both domestic and global observers. CI received several comments on Warsh’s nomination.
Isaac Wheeler, Managing Director of Balance Sheet Strategy at Derivative Path, described Warsh’s selection as a “surprisingly conventional pick.”
“Kevin Warsh is an interesting pick as Fed Chair. A Bush appointee to the Fed in 2006, he’s a surprisingly conventional choice for a president who spent months agitating for lower rates. Warsh has a hawkish reputation and a history of pushing back on novel policy tools like quantitative easing, but we think it’s unlikely Trump would have nominated him without some signal of willingness to support additional cuts,” stated Wheeler. “Still, the FOMC does become more hawkish on balance: Warsh replaces Stephen Miran as a voting member, who has campaigned for 50bp cuts since arriving on the Committee. More broadly, his appointment signals a potential scaling back of the Fed’s market footprint. Warsh doesn’t seem like a Chair who would push the Fed into novel territory like yield curve control- though given Treasury’s recent directive for Fannie and Freddie to buy $200 billion in MBS, this administration may have other tools at its disposal.”
Several Cato Institute experts joined in sharing a statement on Warsh’s selection. Norbert Michel, Jai Kedia, and Nicholas Anthony said there are positive signs in this appointment, noting that he was among the first members to criticize the Fed’s use of quantitative easing as a permanent monetary policy tool and has expressed skepticism that the Fed is an all-powerful, all-knowing institution.
“Still, while Warsh has spoken of the policymakers’ lack of knowledge and need for humility, he has also supported the creation of a central bank digital currency [CBDC], a move that would give the federal government even more control over money. And while Warsh has spoken out a fair amount about the Fed’s mission creep, it will largely be up to Congress to reduce the Fed’s reach. While President Trump remains hyper-fixated on interest rates, the truth is that the pick for Fed Chair has very little to do with the direction of interest rates. Hopefully, if appointed, Warsh votes for interest rate decisions apolitically and directs the Fed towards establishing rules-based monetary policy, eliminating interest payments on reserves, and drastically shrinking the size of the balance sheet.”
The Competitive Enterprise Institute also distributed opinions on Warsh Chairing the Federal Reserve.
John Berlau, Director of Finance Policy at CEI, offered a caution and questioned Warsh’s support for a CBDC.
“His support for a CBDC – a digital form of a nation’s fiat money, backed by the central bank and acting as a direct liability of the government – puts Warsh in opposition to President Trump, Republicans in Congress, and numerous conservative and free-market public policy groups. 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 that during the confirmation hearings, Senators must give his opinion on CBDCs serious consideration.
CEI finance and monetary policy analyst Steven Swedberg said the approach of coordinating the management of national debt and the Fed’s balance sheet carries real risk.
“When monetary policy is tied to the government’s financing needs, the central bank can come under pressure to prioritize debt management. That dynamic would weaken the Fed’s independence and reduce incentives for fiscal discipline, increasing the likelihood that monetary policy is used to smooth over budgetary imbalances. Over time, such structural pressures could lead to more distorted policy outcomes, higher inflation risks, and diminished confidence in the Fed’s ability to act as an independent economic authority.”
Ryan Young, CEI Senior Economist, said that the top issue of Fed independence concerned him.
“He would be just one vote out of 12 on interest rates, which limits the damage he could do there. But his past support for a Central Bank Digital Currency and his wanting the Fed to work more closely with the Treasury Department do not bode well for either the Fed’s independence or for keeping inflation under control. While Warsh has his positive aspects such as a long track record as an inflation hawk, his recent repositioning on tariffs indicates that at least some of his principles can melt when they come into contact with politics.”