Kevin Warsh is an excellent nominee to be Chair of the Fed. Warsh will get through the Senate Banking Committee hearings and will be Confirmed by the full Senate. I also expect Powell to announce that he will retire when he steps down as Fed Chair in May 2026.

Warsh’s economic philosophy is far different from Trump’s.  Warsh is an old-fashioned conservative and a free market advocate; a reduce the budget deficit guy and on monetary policy an inflation hawk who pays attention to the Taylor Rule on interest rates and talks publicly about money supply. Trump favors lower rates and is not a deep thinker on monetary policy or the economy.

Warsh has coveted the role of Fed Chair and lobbied heavily for it.  He will go along with Trump’s urging for lower interest rates in the short run, likely through Warsh’s first several meetings (through Summer 2026).  This is especially true if I’m right and consumption and economic growth slow a lot with continued weak labor markets and we get some favorable inflation news in coming months.  So I do expect Warsh’s term will begin with lower rates.

But at some point Warsh will say „no mas“ – and he and Trump will butt heads publicly.  Here, Warsh will work very well with Bessent who will support Warsh if Fed easing leads to bad market outcomes – a steeper curve, higher rates and/or a marked decline in the US dollar. 

Warsh will not want above target inflation on his watch, and his target will be 2%, not 2.5% or 3%.  Remember, as Fed Governor Warsh was good personal friends with Bernanke but quit in protest when Bernanke led Fed to extend aggressive easing in 2010, well before QEIII.

Warsh will be welcomed back to the Fed by FOMC members and he will work well with other FOMC members. He will be a collegial leader of the FOMC.  Warsh will be open for a constructive dialogue on changing the governance of the Federal Reserve System, but push back on the type of disruptive changes that Fed Governor Steve Miran has proposed.

On a personal note, I have known Warsh for decades.  When he was Fed Governor, including the period around the Global Financial Crisis, we had regularly scheduled meetings prior to every FOMC meeting (when I was chief economist at Bank of America).  We have shared many discussions and podiums over the years.  He is very knowledgeable about monetary policy and financial markets.