What economic experts think about Trump's choice of Kevin Warsh for Fed chair

President Donald Trump announced Friday that he would nominate Kevin Warsh to be the next chair of the Federal Reserve, an independent agency that has been under pressure from the president to lower interest rates for the last year.

If confirmed, Warsh would succeed Fed Chair Jerome Powell — a previous Trump nominee who has incurred the president's ire for not heeding his demands — when Powell's term expires in May.

Warsh served on the Fed Board of Governors from 2006 through 2011, where he had an opportunity to help shape the U.S. economy during one of its greatest periods of turmoil in recent history. Now a fellow at the Hoover Institution, a conservative think tank, and a lecturer at the Stanford Graduate School of Business, he also worked as an economic advisor to President George W. Bush.

Experts appear to view Warsh's nomination with "cautious relief," said Mark Gertler, a professor of economics at New York University.

Here are three things to know about Warsh and how he might influence the Fed as the agency's new head.

1. Warsh is a lawyer, not an economist

Like Powell, Warsh has a J.D., not a Ph.D. in economics. Powell was the first Federal Reserve chair in 30 years to not have a doctorate in economics.

"The Fed's culture is Ph.D. economists on top," said Aaron Klein, a senior fellow in economic studies at the Brookings Institution.

"I think Powell was pretty deferential to what the professional staff economists' view was," he added.

But Warsh may have a different approach, said Klein, who first met him when Warsh was working at the National Economic Council at the White House. Lawyers view the world through a different cultural lens than macroeconomists do, he said.

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"The question is: Is Kevin going to shake up the culture of the Fed staff? Or is he going to show deference to the Fed's Ph.D. economists who are accustomed to running the show?" Klein said.

That could influence his policy decisions, too, Gertler said. Warsh isn't an economist and doesn't speak — or necessarily reason — like one, he added.

"The reason I'm not too worried is Powell was not an economist either, but Powell learned over time. In fact, I think (he) learned pretty well," Gertler said. "I'm hopeful that the same will be true with Warsh — that is, put him in there with a bunch of economists and they will help sharpen his thinking."

2. In many ways, Warsh is a conservative pick

While not a macroeconomist by education, Warsh has a relatively traditional background for a Fed chair nominee, experts said.

He's an academic with experience in the executive branch, as well as on the Federal Reserve Board of Governors, and is knowledgeable about financial markets. During his term as a board member, he was instrumental in helping then-Chair Ben Bernanke navigate the 2008 financial crisis.

"Warsh is a serious guy with a long track record and a deep experience," Klein said. "Warsh was the Fed board's interlocutor with the markets during the financial crisis."

Gertler said that knowledge about financial markets is an important characteristic in a Fed chair, because while interest rate setting isn't easy, it's "straightforward." But understanding the markets requires "specialized expertise," which Gertler said he thinks Warsh has.

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Warsh also has a history of being intellectually conservative, Klein said, with an eye toward reducing government intervention in the markets.

"He's not some outsider. This is not like Pete Hegseth coming in, or Kristi Noem, or whatever. This is someone who does have some genuine expertise, and he has been at the Fed," Gertler said.

"He has not come across as overtly political in the way some other candidates did," he added.

Warsh likely understands the Fed's culture and is unlikely to "try and tear the place apart," Gertler noted. That's giving experts reason for some relief, he said.

Overall, Klein said, Trump is likely motivated by pressure from the markets, and Warsh is a pick that will reassure investors.

3. Based on his past and latest statements, it's uncertain how he'll approach policy

In the past, Warsh has been "hawkish" on interest rates, meaning, like Powell, he was reluctant to lower them for fear of increasing inflation.

But recently, he's changed his tone on the subject. In an opinion piece in The Wall Street Journal in November, Warsh argued that "inflation is a choice," blamed the Fed for not moving fast enough and said the agency should lower rates.

On the other hand, Warsh has been relatively consistent in opposing the Fed's policy of "quantitative easing," or the large-scale buying of assets such as mortgages.

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The Fed currently owns more than $6.5 trillion in assets, around $4 trillion more than when Warsh left the board in 2011. Some economists, including Klein, believe the policy has been a major contributor to a too-tight housing market.

One possibility Klein sees is Warsh cutting interest rates, which would "juice" the economy, and selling assets, which would likely increase interest rates, meaning the two actions could cross-cut each other. The overall economic impact is unclear, because "no one's ever done that."

"This is where the Ph.D. economist would disagree," Klein said.

Warsh will be just one among many in the Fed who will contribute to the board's policy decisions, Gertler said.

"He's not going to come in and be able to unilaterally do things," he said. "The staff and the rest of the committee will have impact as well."