Will Trump’s Pick to Lead the US Central Bank Get Him the Change He Wants?

Donald Trump has long championed change at the US central bank. With Jerome Powell’s term as Federal Reserve chairman set to expire in May, he may finally get his wish. On Friday, Trump announced Kevin Warsh—a conservative he initially overlooked for the role during his first term—as his choice to succeed Powell.

The Reality of Kevin Warsh’s Appointment

– Warsh’s Background: With a prestigious Ivy League education and experience at both the Federal Reserve and on Wall Street, Warsh brings a traditional perspective to the position. His ties to the Hoover Institution—a conservative economic think tank—also shape his outlook.

– Trump’s Perspective: Trump remarked on social media that Warsh is “central casting” and someone who “will never let you down.” However, this choice raises eyebrows, as Warsh has established a reputation as a proponent of higher interest rates— a stance that notably contrasts with Trump’s preference for low rates.

– Independence vs. Influence: Supporters emphasize Warsh’s understanding of the Fed’s independence and the importance of avoiding policies driven by short-term political goals. Lee Ohanian, an economics professor at UCLA and a senior fellow at the Hoover Institution, cautioned that following Trump’s directives could undermine the Fed’s credibility and stability.

Reactions and Implications

– From Financial Circles: Warsh’s potential commitment to an independent approach is seen as a positive by many in Congress and on Wall Street, especially given Trump’s previous criticism of Powell. His nomination has received praise from key figures, including former Secretary of State Condoleezza Rice and economist Mohamed el-Erian.

– Criticism of Warsh’s Record: Critics question whether familial ties—Warsh’s father-in-law is a Trump donor—played a role in his selection. Detractors also point to his hesitance during the 2008 financial crisis, when he opposed economic stimulus measures on inflation grounds, a view that remains controversial.

What Could Warsh Mean for Interest Rates?

The acceptance of Warsh reflects a gamble that his leadership might maintain the Fed’s current trajectory despite Trump’s discontent. Despite the president’s complaints, the Fed cut interest rates three times last year, and many analysts predict further reductions this year—potentially benefitting borrowers and, indirectly, Trump’s economic standing.

– Possible Changes Under Warsh: While it remains to be seen how Warsh could influence interest rates, he has expressed concerns regarding the Fed’s mission creep. His aim to reduce the central bank’s involvement in areas like climate change aligns him with the White House, suggesting a shift in the Fed’s priorities.

– Economic Considerations: Warsh contends that extensive Fed interventions—like those made post-2008 financial crisis and during the COVID-19 pandemic—disproportionately benefit wealthy individuals. He advocates for a reevaluation of the Fed’s asset holdings and a more coordinated relationship with the Treasury.

A Balancing Act Ahead

While Warsh presents himself as a candidate who might satisfy various stakeholders, Trump’s rapid shift in opinion regarding Powell serves as a reminder of the unpredictability of this role. Whether Warsh will truly embody the change Trump desires while maintaining the Fed’s independence remains uncertain.

In conclusion, Kevin Warsh’s appointment as the potential leader of the US Federal Reserve signals a complex interplay of interests, ideologies, and economic strategies. As the financial landscape evolves, the real question remains: will Warsh’s leadership reflect the change that Trump envisions?