What Trump's nomination of inflation hawk Kevin Warsh means for the Federal Reserve

Amna Nawaz:

Today, President Trump announced Kevin Warsh as his pick to be the next chairman of the Federal Reserve. A conservative economist at the Hoover Institution, Warsh is a former adviser to President George W. Bush and was a member of the Federal Reserve's Board of Governors from 2006 until 2011.

In a post on Truth Social, Trump said -- quote -- "He will go down as one of the great Fed chairmen, maybe the best. On top of everything else, he is central casting and will never let you down."

The president went on to praise his pick this afternoon.

President Donald Trump:

He's got the whole package. He's got the whole package. And I think he's going to do a great job.

Amna Nawaz:

If confirmed by the Senate, Warsh will succeed current chair Jerome Powell, whose term ends in May.

Joining me now is David Wessel. He's director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.

David, welcome back.

And let's just start with your brief take on what you make of this selection. What should we know about Kevin Warsh?

David Wessel, Brookings Institution:

Well, Kevin Warsh is actually a lawyer. He's not an economist. He's a very ambitious guy who has been an excellent networker.

He was appointed to the Federal Reserve Board by George W. Bush at age 35, younger than anybody else. He is a man who understands the markets. He's very good with people. I think that'll serve him well. And he has sort of changed his stance on monetary policy over the years.

He was what is generally called a hawk, an inflation fighter, when he was on the board. But in recent years, particularly as he's been campaigning, auditioning, if you will, to be Fed Chair, he's become more in sync with President Trump. He's very critical of the Fed. He's very critical of their staff.

And he's promising regime change, but we don't really know what that means.

Amna Nawaz:

Well, to that point, David, we know the current Fed Chair, Jay Powell, has faced a steady stream of criticism and insults from President Trump. Here is how Warsh himself assessed the Fed and their work last summer. Take a listen.

Kevin Warsh, Federal Reserve Chair Nominee:

I think the Fed has done a very good job of blaming others for their mistakes. It's been very popular to blame the president because he's being so mean to them. Well, most of the Fed's mistakes are because of choices they've made.

I have strongly believed for 20 years and history tells us that the independent operations in the conduct of monetary policy is essential. But that doesn't mean the Fed is independent in everything else it does.

Amna Nawaz:

David, as you mentioned, he's currently called for regime change at the Fed. What does all of this tell us about how Kevin Warsh might lead the Central Bank?

David Wessel:

Well, I think we know that he believes that the economy is capable of growing faster than a lot of economists think because A.I. will increase the productivity of the economy.

So I think we expect him to be prone to cut interest rates. In the clip you played, what he's talking about is bank regulation, where I think he'll be in sync with the deregulatory instincts or policies of the Trump administration.

And he's been critical of them for being interested in things like climate or inequality. He thinks the Fed should narrow its focus to interest rates, inflation, the economy, and not do anything else.

Amna Nawaz:

As we know, the Central Bank was designed to be insulated from political interference.

When you hear him say there that the Fed isn't independent in everything it does, does that worry you?

David Wessel:

No, it doesn't worry me because I think he's talking about things other than monetary policy.

But the real question is, which Kevin Warsh is going to show up? Is he going to be independent, focused on delivering stable prices and maximum employment, and doing what the economy and his staff tells him is essential? Or is he going to be prone to lean in the direction of President Trump, who inevitably will be criticizing him on social media, no matter what he does?

The president has talked about huge rate cuts, one full percentage point, two full percentage points. That's lunacy. And I can't imagine that Kevin Warsh is going to do that. We will have to see, how does he stand up if the president starts to put the screws to him, as he did to Jay Powell?

Amna Nawaz:

Well, this is the central question, isn't it, David, that if he's confirmed, he wouldn't preside over a Fed meeting until June. The economy could be in a different state by then. We have no idea of knowing, but the president wants to see lower interest rates.

Can Kevin Warsh deliver those?

David Wessel:

Well, the financial markets have been predicting that the Fed would cut interest rates at least one or two times later this year. And I suspect he can deliver that. He will probably have a bit of a honeymoon at the Fed, and the other policymakers will go along with him.

I think the test will come probably in 2027 and 2028, when he will have to decide if the president's view of the economy matches his, and will he prove to be independent there? I'm sure, in his confirmation hearings, he will assert his independence.

He understands what a Central Bank is. In a way, the president picked one of the candidates who knows what it's like to be at the Fed, and that will serve him well. But, really, we will have to see how he acts when there's conflict between the economy, what the economy needs, and what the president and his political needs are.

Amna Nawaz:

In the minute or so we have left, I have to ask you about conversations we have had before about the fact that the world is watching when it comes to the Fed, when it comes to its perceived independence in monetary policy.

What's at stake if he is confirmed and takes the helm?

David Wessel:

In general, the United States has benefited from having a strong independent Central Bank, not a perfect one, but global investors believed that the Central Bank, the Ben Bernanke, Jay Powell, Janet Yellen Central Banks were doing their best to deliver on the congressional mandate, and they were standing up, and Jay Powell has done this very effectively, to political pressure.

The world will watch whether Kevin Warsh does the same thing. And if they think he isn't, then we're going to have to pay more to borrow. And we're the world's largest borrower, so a little bit of increase in interest rates if people are worried about the independence of the Fed will cost taxpayers a lot of money.

Amna Nawaz:

David Wessel of the Brookings Institution, thank you so much for your time. Great to speak with you.

David Wessel:

You're welcome.