Kevin Warsh checks a long list of boxes for President Donald Trump as his pick torun the Federal Reserve, with longstanding political and social ties to the president, deep Wall Street connections and a well-tailored demeanour, but how deeply and quickly he will cut interest rates and how aggressively he will pursue his “regime change” at the Fed remain open questions. Likewise, Warsh’s years of Fed criticism, begun after he left the board in 2011 and intensified over the past year as Trump considered him to succeed current chair Jerome Powell, now meet the challenge of how to turn think-tank speeches and newspaper op-eds into reform that can get through the Fed’s Board of Governors, get sign-off from Trump and Treasury secretary Scott Bessent, and clear the US Congress if it involves amending the Federal Reserve Act. Change, in other words, may be easier said than done.
Warsh “is a pragmatist who won’t want to lose market trust by making cuts that aren’t warranted. His long history of concern about inflation suggests that he won’t allow the economy to overheat,” said Heather Long, chief economist for Navy Federal Credit Union. “He’s been an outspoken critic of the Fed’s balance sheet and groupthink.
More clarity is needed on how far he intends to go” in pursuing other changes at the Fed. It also may take more than just “breaking some heads” at the Fed, as Warsh put it in a July interview on Fox News, speaking of the people who are about to become his colleagues. The Fed particularly in the last 20 years has become a complex, hybrid beast that grew with an expansion of power during the financial crisis and through the pandemic.
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That may be just what Warsh and Treasury’s Bessent, in recent writing, have in mind in their criticisms. The Fed’s mix of monetary policy powers, considered its sole province, along with the sort of regulatory authority that is usually situated in the executive branch, and controlling legislation set by Congress, has left even Supreme Court justices puzzled about exactly where the Fed fits in the federal system. The chair could shift the tone of Fed communications, discourage the array of speeches from the 12 reserve bank presidents or even other governors to more closely control the messaging, or work more closely with Bessent and recast the Fed’s relationship with the Treasury.
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