President Trump on Friday named former Fed Governor Kevin Warsh as his pick to lead the Federal Reserve when Jerome Powell’s term ends in May.
“I am pleased to announce that I am nominating Kevin Warsh to be the CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,” Trump wrote on his social media platform. “I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best.”
Reviewing his educational and career achievements, which include graduating from Harvard Law School and working in government and banking, Trump added that Warsh is the kind of “central casting” figure he so admires.
In addition to Warsh, Trump also considered National Economic Council Director Kevin Hassett, Fed Governor Christopher Waller and BlackRock executive Rick Rieder for the position, and said they all would have been “outstanding” in the job. Trump noted that Hassett had been the leading candidate at one point but had done “such an outstanding job working with me and my team at the White House, that I just didn’t want to let him go.”
“[A]s the expression goes, ‘if you can’t do better, don’t try to fix it!’” Trump said.
A dovish turn: Currently affiliated with the conservative Hoover Institution, Warsh served as a member of the Federal Reserve Board of Governors from 2006 to 2011 and was in the running for the top position at the central bank in 2017, during Trump’s first term. Warsh had a reputation as an inflation hawk during the Obama administration and was critical of the quantitative easing that occurred in response to the financial crisis in 2009. But he has recently changed his tune with dovish calls for lower interest rates that match Trump’s position on the issue.
Just where Warsh lands on interest rates will be of great interest, with potentially significant implications for economic growth and inflation, though the assumption is that his recent dovish turn played a key role in winning Trump’s favor. “It’s reasonable to assume that he told the President he favors reducing interest rates today, otherwise he would not have been nominated,” Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a note Friday, per CNN.
At the same time, Warsh may not want to be seen as merely a Trump loyalist. “Our instincts tell us Mr. Warsh will be more preoccupied with how history will view his record than with continuing to pander to the President,” Tombs added.
Michael Feroli, chief U.S. economist at JPMorgan Chase, said that Warsh could adjust his stance over time. “The two big questions are who’s the real Kevin Warsh and does that evolve?” he said, per Bloomberg. “I presume at the outset he is going to be dovish, but does that persist as we move forward a year or two or more?”
Political hurdles: Warsh will need to be confirmed by the Senate Banking Committee, and the hearings on his nomination could center on the question of his independence. Trump has publicly battled with the current Fed chief over interest rate policy — a battle that includes hurling insults and accusations of fraud, salted with threats of firing and indictment — while making it clear that he wants much lower interest rates. Trump’s pressure campaign is seen by some as an improper effort to interfere politically with the central bank, which is designed to be insulated from day-to-day political pressures.
Republican Sen. Tom Tillis, who sits on the Banking Committee, said Friday that he will oppose any and all Fed nominations until the threats against Powell, which include an ongoing criminal probe, are resolved.
“Kevin Warsh is a qualified nominee with a deep understanding of monetary policy,” Tillis said in a statement. “However, the Department of Justice continues to pursue a criminal investigation into Chairman Jerome Powell based on committee testimony that no reasonable person could construe as possessing criminal intent. Protecting the independence of the Federal Reserve from political interference or legal intimidation is non-negotiable.”
Democratic Sen. Mark Warner, who also sits on the Banking Committee, expressed more fundamental doubts about Warsh’s ability to act independently. “It is difficult to trust that any Chair of the Federal Reserve selected by this president will be able to act with the independence required of the position,” Warner said.
Sen. Elizabeth Warren, the senior Democrat on the Banking Committee, said Warsh’s nomination must be seen in light of Trump’s long-running effort to gain control of the nation’s central bank. “Donald Trump said anybody who disagrees with him will never be Fed Chairman,” she said in a statement. “Former Fed Governor Kevin Warsh – who cared more about helping Wall Street after the 2008 crash than millions of unemployed Americans – has apparently passed the loyalty test.”
What comes next: A confirmation hearing by the Senate Banking Committee is expected to take place in March, with a vote in the full chamber coming in April. If confirmed, Warsh would take the reins at the Fed in May.