In traditional fashion, Donald Trump elevated the question of who would take the reins of the Federal Reserve into a dramatic event. Just hours before the announcement of Kevin Warsh, alternative candidates were seen as the betting favorite. Instead, the crown was granted to Mr. Warsh, a man who became the youngest Fed governor in history thanks to Wall Street credentials and a generous political donor father, who has been actively courting the role since the first Trump administration.
The selection of Warsh is both curious and in lock-step with many of Trump’s staffing decisions. A president who has spent most of his time in the White House publicly browbeating Jerome Powell for easier monetary policy has selected as his successor someone who spent his previous stint on the Fed as an inflation hawk - an apparent contradiction in policy preference and chosen personnel. Leading up to his selection, however, Warsh had expertly crafted a message for his chosen audience of one, serving as a leading critic of Powell, whose tenure he described as “one of unwise choices.”
This was not a one-off. He mocked past leaders of the Fed and Treasury for submitting an amicus brief in defense of the embattled Lisa Cook, telling Barrons, “I did not know that senior economic officials at the Treasury and the Federal Reserve’s expertise went all the way to constitutional jurisprudence.” In 2024, he accused Powell of “goosing” the economy before the election, and last July argued that the US economy was set to boom if not for “bad economic policies coming from the central bank.” On the Fed as a whole, he has criticized the central bank for engaging in “mission creep” and has advocated for “regime change.”
All of this was undoubtedly music to the ears of the president who has anointed him, but such scathing criticism directed at a potential predecessor is unprecedented in the history of America’s central bankers. The evolution of Warsh’s rhetoric is perhaps best illustrated by contrasting a 2010 speech titled “An Ode to Independence” a predictable oration holding up the essential myth of central bank independence, with a speech he delivered last year declaring that “central bankers should not be pampered princes.” He went on to note, “Central banks were created so that politicians would have someone to blame for this…I read breathlessly in the newspapers how mean these politicians are to the central bank. Well, grow up. Be tough.”
It was perhaps inevitable that the position of Federal Reserve Chairman be offered to a figure so explicit in their public political posturing. The central bank has, of course, always been a political position. The facade of their isolation from vulgar political whims was to project the Fed as the technocratic ideal, Washington’s own version of the Wizard of Oz. That shine has dimmed in the last few decades, correlating with a significant increase in its impact on America’s economy on numerous fronts.
The initial response to Warsh’s nomination is worthnoting: gold and silver fell from previous highs, while Bitcoin and stocks also fell, in part due to his “hawkish” reputation. This reaction hints at the fundamental question of Warsh’s potential chairmanship: can a chairman who owes his position to explicit political posturing stand against the inflationist demands of the president he seeks to serve? In the past, he has called for the Fed to wind down its balance sheet, including selling off its mortgage backed securities, and even suggested the central bank should stop providing Congress with financial cover to avoid feeling the pain of its unsustainable entitlement programs. The current administration, of course, has regularly demonstrated its desire to avoid any of the fallout that would come from these policy pivots.
The more immediate question is Warsh’s own path from nominee to chairman. Several Senate Republicans are currently in open rebellion in defense of Jerome Powell in the aftermath of the DOJ probe into comments he has made to Congress. Additionally, he could struggle to wield a consensus, given his harsh criticism of both Powell and the institution he seeks to govern. In his last press conference, Powell not-so-subtly touted both his deep Washington connections with legislators and the loyalty he has with the Fed’s rank and file. A cynic might read that as a pre-emptive shot at Warsh, indicating that he is better at forecasting DC maneuvering than he is at economic headwinds.
Of course, the most likely outcome is the one we should expect from federal institutions: public barbs are forgotten, grand ambitions for reform go dry, and the wheels of the status quo grind on.
If so, Warsh’s nomination may be be remembered as the last best time to buy gold at under $5,000.
