Trump’s Fed-Chair Pick Is an Interest-Rate Hawk—Or Is He?
Cue the bankers’ equivalent of white smoke: Donald Trump has finally named his pick to be the next chair of the Federal Reserve. This morning, Trump announced that he will nominate Kevin Warsh, a former Wall Street banker and Fed governor, to lead America’s central bank. Unlike some of the other contenders for the job, Warsh does not have a track record as an avowed Trump loyalist. For that reason, the response to his nomination from mainstream figures has been mostly positive. “Kevin Warsh is well above the bar on both substance and independence to be Chair of the Federal Reserve,” Jason Furman, who served as the chair of Barack Obama’s Council of Economic Advisers, posted on X. But Warsh’s record raises the possibility that he is a partisan actor whose views on monetary policy are shaped less by real economic conditions than by whether a Democrat or Republican is in power.
Trump has not been shy about what he wants in a Fed chair: someone who will lower interest rates. He has constantly attacked current Fed Chair Jerome Powell for not slashing rates fast enough, to the point of launching an obviously spurious criminal investigation into him. Powell has stood firm, but his term as chair expires in May. This gives Trump the chance to install someone who will do what he wants.
[Will Gottsegen: The candor of Jerome Powell]
That someone was long expected to be Kevin Hassett, the head of Trump’s National Economic Council. Hassett, who was once a widely respected conservative economist, has in recent years taken a sharp turn into Trumpist propaganda. A Hassett chairmanship therefore augured reckless rate cuts that could trigger a fresh bout of dangerous inflation. This spooked Wall Street. Major bond investors met with the administration to tell them how worried they were. After Trump’s Department of Justice launched its investigation into Powell, Republican officials including Senate Majority Leader John Thune questioned the probe’s legitimacy and asserted the importance of central-bank independence. Senator Thom Tillis, a member of the Senate Banking Committee, said that he would refuse to vote on a nominee for Fed chair until the Powell investigation had finished.
This backlash appeared to get to Trump. He began saying that he’d had a change of heart—that Hassett was actually too valuable an asset as the NEC director to give up. And now the president has instead nominated Warsh, to much applause from the economics establishment. “I believe he brings a strong mix of deep expertise, broad experience, and sharp communication skills,” Mohamed El-Erian, the former CEO of the global investment firm PIMCO, posted on X. “I think he’s a great pick,” Mark Zandi, the chief economist at Moody’s Analytics, told me. “The most important task for the next Fed chair is to preserve the central bank’s independence. And I don’t think there is anyone who is better suited to do that than Kevin.”
The reason for relief is twofold. First, Warsh’s résumé is conventional. He spent his early career on Wall Street and served as a top economic adviser to George W. Bush before becoming, at the age of 35, the youngest-ever appointee to the Federal Reserve Board of Governors, the body that votes on interest rates. When the financial crisis hit two years later, Warsh acted as the central bank’s liaison to Wall Street, helping engineer bank bailouts.
Second, Warsh is seen as an inflation hawk who will err on the side of higher, not lower, interest rates. During the 2010s, he became known within Wall Street and Washington circles as one of the fiercest critics of the Fed’s zero-interest-rate policy, to the point of warning about inflation when unemployment was still at 10 percent. “He’s a pretty stone-cold hard-money guy,” Jared Bernstein, who served as the chair of Joe Biden’s Council of Economic Advisers, told me. “It’s a peculiar choice for Trump, because the Fed that Warsh wants is very different from the one Trump wants.”
The case against Warsh is this: What he wants seems to change depending on which party controls the White House. Warsh was a staunch inflation hawk during the Obama administration. Then Trump was elected, and he seemed to soften. In a 2018 Wall Street Journal op-ed titled “Fed Tightening? Not Now,” Warsh and his co-author, Stanley Druckenmiller, argued that, “given recent economic and market developments, the Fed should cease—for now—its double-barreled blitz of higher interest rates and tighter liquidity.”
“He’s someone who has repeatedly shown a willingness to change his positions on a dime when it’s politically convenient,” Skanda Amarnath, the executive director of Employ America, a Fed-focused think tank, told me. “Sure, he’ll give lectures about inflation and sing the praises of high interest rates when a Democrat is in power, but the moment that a Republican is in office, he’ll suddenly change his tune.”
[Rogé Karma: The Federal Reserve’s little secret]
Under Biden, Warsh reprised his hawkish outlook. As late as September 2024, he criticized the Fed for cutting interest rates prematurely. Then, after Trump took office early last year—and it became known that Trump was considering him for Fed chair—Warsh began advocating for rate cuts. In a November Wall Street Journal op-ed, he argued that the United States was on the verge of an AI-driven productivity boom that would be a “significant disinflationary force” and that the Fed “should abandon the dogma that inflation is caused when the economy grows too much and workers get paid too much.” (Why these facts weren’t true a year earlier, when Biden was in office, was left unclear.)
In this telling, Warsh is a partisan shape-shifter who advocates for high interest rates (which results in slower growth and higher unemployment) under Democrats and lower rates (faster growth, lower unemployment) under Republicans. As my colleague Jonathan Chait pointed out last year, this description also applies to Trump himself, who spent the Obama years tweeting about how the Fed needed to be “reined in or we will soon be Greece”; he then demanded lower rates during his first term, went back to attacking the Fed for cutting rates under Biden, and then immediately demanded rate cuts once he was back in the White House. This shared approach—easy money for me, economic pain for thee—might explain why Trump was comfortable nominating Warsh.
No one can say which version of Warsh will lead the Fed, assuming he’s confirmed. Every other high-level presidential appointee during Trump’s second term has proved willing to carry out his wishes. Perhaps Warsh will break the pattern. Quite a lot of economic outcomes could turn on whether he does.