The market’s initial response to Kevin Warsh’s nomination as Federal Reserve chairman — summed up by a jump in the dollar — suggests that it believes that the president is on the right track here.
Announcing the nomination, Donald Trump described Warsh as being “central casting.” That’s why the more conventional Trump 45 considered him for the job in 2017, but it’s also why the more assertive Trump 47 is turning to him now. There is the Senate, and there is also an obvious need to reassure jittery financial markets, especially in an era of geopolitical instability and massively overborrowed governments (the U.S. is far from being the only culprit in this respect).
Warsh’s résumé is indeed one from central casting — Stanford, Harvard, Morgan Stanley, George W. Bush’s White House, appointed as the youngest-ever Fed governor in 2006 — but what makes it stand out is its chronology. A little more than a year after Warsh took office, increasingly severe market turbulence heralded the approach of the global financial crisis, a storm that, as someone with experience and good connections on Wall Street, he was well-equipped to help navigate, as he duly did. The steps taken to calm the crisis — the bailouts and all the rest — will be debated for decades (Senator Elizabeth Warren has, with tiresome inevitability and tiresome inaccuracy, already criticized Warsh for caring “more about helping Wall Street after the 2008 crash than millions of unemployed Americans”), but the fact remains that, however painfully, we did get to the other side.
During the financial crisis, Warsh was a hawk on monetary policy. He was concerned about an imminent inflationary threat in 2009. In 2010, he wrote in a Wall Street Journal op-ed:
Monetary policy . . . has an important role to play. However, the Federal Reserve is not a repair shop for broken fiscal, trade or regulatory policies. Given what ails us, additional monetary policy measures are poor substitutes for more powerful pro-growth policies.
Warsh left the Fed in 2011, spending much of his time at Stanford and its Hoover Institution. To his credit, he has never abandoned his critique of the central bank as an institution that is doing too much, a critique that, in the years since, he has expanded along with the missions that the central bank has taken upon itself. Those have ranged from “inclusion” to (for a while) supposedly combating climate change while all too often taking an overly relaxed view of inflation.
The Fed, wrote Warsh in 2025, “has acted more as a general-purpose agency of government than a narrow central bank.” We agree, and so, not so incidentally, does Treasury Secretary Bessent.
When it comes to economic policy, the Fed should stick to its “dual mandate” of maximum employment (an undefined number) and stable prices, currently rather generously defined as a long-term average of 2 percent. A third mandate, moderate long-term interest rates, is generally held to follow naturally from satisfying the first mandates, as is appropriate: It should not be an objective in its own right.
The question for Warsh, who we should note has only one vote on the board, is how his long-standing hawkishness on inflation can be reconciled with the views of a president for whom, it sometimes seems, no interest rate can be too low. The answer to that is that they cannot, but the point of an independent central bank is that that should not matter.
Warsh may be put to the test on this issue in short order. The latest inflation report on producer prices came in hotter than expected. While cutting rates is not inflationary in every single instance, at this time, any further rate cuts would not only be premature but would, in the end, be likely to be counterproductive by forcing rates up, especially if there is any perception — a high risk currently — that Warsh has been bullied into it. We hope the president can come to understand that. Even if Trump does not, Warsh must stick with what he believes to be right despite angry posts on Truth Social.
To be sure, Warsh has supported interest rate cuts of late, but that could be “electioneering.” In any case, deeds will count more than words. As a strong supply-sider, Warsh does believe in noninflationary growth. This opens up the possibility for lower rates than robust economic growth would traditionally suggest. That’s fine, but that happy moment has not yet arrived. Moreover, Warsh’s praiseworthy desire to see a smaller Fed balance sheet will be hard to square with lower interest rates. Time will tell if he can manage that feat.
We await the hearings with interest.