How Kevin Warsh Could Shape the Fed

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. President Donald Trump took to Truth Social Friday morning to announce his choice for the next chair of the Federal Reserve. President Trump has tapped Fed critic Kevin Warsh. Kevin Warsh. Kevin Warsh to be the next Fed chair. Kevin Warsh. He's not a household name, but he's also not exactly a surprise pick. He's a former Fed governor who served during the financial crisis. And he was up for the Fed chair position during Trump's first term in 2017. Trump chose Jerome Powell instead. But there's a big difference between the old Warsh and the new Warsh.

1:43Well, I think the big question that many Fed watchers are asking today is which Kevin Warsh will show up to be Fed chair if he is confirmed? My colleague Amara Amokwe covers the Federal Reserve. She says that for a long time, Warsh was cautious about lowering rates because of the risks of driving up inflation. But recently, Warsh has been signaling a shift in position. He does have this track record of being an inflation hawk, but then as he's been in the mix for Fed chair, has really embraced this idea that for several reasons he argues that the Fed can be cutting interest rates. Here he is on Fox News this summer.

2:23The Fed has the policy mix exactly wrong. It has a big balance sheet like we're in the 08 crisis and the 2020 pandemic and has rates that are too high. It needs to shrink the Fed balance sheet and cut interest rates. Trump, of course, has put pressure on the Fed to cut rates more aggressively, challenging long-held norms around the central bank's independence and stoking concerns about how much influence the president will have over the next Fed chair. Did Kevin Warsh commit to you that he will push to cut interest rates if he is confirmed? At the White House Friday morning, reporters asked the president about what he expects from Warsh.

2:59Well, we talk about it, and I've been following him, and I don't want to ask him that question. I think it's inappropriate, probably. It probably would be allowed. But I want to keep it nice and pure. But he certainly wants to cut rates. I've been watching him for a long time. Warsh would replace Fed Chair Powell when he turns out in May. But before Warsh can step into the role, he'll need to be confirmed by the Senate. And until then, he'll be under a microscope. Is Kevin Walsh going to show up to the Fed chair job and defend this decades-long tradition of Fed independence and really push for policy that is based on his best judgments of what's happening in the economy?

3:37Or is he going to be a person who pushes for policy that is aligned with what the president prefers? I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, President Trump has named Kevin Warsh as his pick for the next chair of the Federal Reserve. I sit down with Fed reporter Amara Amokwe and senior Washington correspondent Saleha Mosen to break down what we know about Warsh, how he might lead the Fed, and what to watch out for on the road to his confirmation.

4:14So the reason we're here is that in a Truth Social post this morning, President Donald Trump announced his pick for the next chair of the Federal Reserve, Kevin Warsh. Salaya, who is Kevin Warsh? Kevin Warsh previously served at the Federal Reserve. He was nominated to that role by George W. Bush. He interviewed for the chairmanship back in the first Trump term in 2017 when those interviews were going on. And eventually Jay Powell was offered the job at that time. Then Treasury Secretary Steven Mnuchin said you should choose Jay Powell. And then we saw in November of 2024 when Trump had been reelected and he was looking for a Treasury Secretary.

5:01Warsh popped up again and was part of those interviews. didn't get that job, but still everyone kind of had a sense that the job that he would really want is the Fed chair role. Well, I mean, as you've just laid out, Warsh has had many of the roles you might expect for a future Fed chair. He was on the Central Bank's Board of Governors. He served during the financial crisis. He's been an economic advisor for the president. Trump even said he was central casting. Amara, when you look at his resume, what stands out to you most? What does it signal about his potential approach in this role? I think people, some people are comforted by the fact that he knows the institution and that during his time at the Fed, he played a very key role in helping craft the Fed's response to the financial crisis because he had a lot of ties to Wall Street.

5:49But I think what people have been thinking a lot about is the fact that during his time at the Fed, Kevin Warsh was seen as an inflation hawk. He was seen as someone who was very concerned about inflation, even during the depths of the financial crisis. And over the last year, as he's been in the mix for the Fed chair, he has become notably more dovish. But to be fair, Warsh in advocating for lower rates has laid out an economic argument. It's not like he's just saying we should be lowering rates for no reason. He has pointed to factors in the economy that he believes should allow the Fed to lower rates, including where we are with productivity in the economy.

6:27And he's also talked about other things like his view that the Fed should have a significantly smaller balance sheet as a way of opening the door for lower rates. So he's been laying out an economic argument. But I think people see a little bit of inconsistency in the fact that he used to be so concerned about inflation. And then as he's been one of the top candidates for this job, the story has kind of changed. Warsh did resign from the Fed board in 2011 over some fundamental disagreements with the central bank's post-crash strategy. What were at the heart of his issues with Fed policy at the time?

7:04So he disagreed with the Fed's decision to continue engaging in quantitative easing. That is the purchase of assets that basically grows its balance sheet. And as he has been in the mix for Fed chair, as he's made speeches and appearances over the last year since Trump returned to office, he has continued to talk about how he thinks the Fed's balance sheet policies have gotten sort of out of hand. And what is interesting is that that criticism and other criticisms that Warsh has made of the Fed since he left have actually been really closely aligned with some of the criticisms we've heard from Treasury Secretary Scott Bessent.

7:43Treasury Secretary Bessent had an essay, a very long essay, where he laid out several criticisms of the Fed. And it was actually striking how similar his criticisms were to some of the criticisms that Kevin Warsh has made of the Fed, particularly on the balance sheet. And we heard Kevin Warsh over the summer basically say that there needs to be regime change at the Fed and institutional change at the Fed. And these are exactly some of the things that Treasury Secretary Besant, who ran point on this Fed selection process, has been talking about. And so in that way, you can see that Warsh was really aligned with the views of some of the most important figures in the administration.

8:23And Zalaya, you've mentioned, you know, one of the pivotal moments in Warsh's evolution is that in 2017, he was passed over for the Fed chair role. Trump chose Powell instead. Trump has since, you know, basically said he regrets doing so. But I'm wondering, you know, what's changed since 2017? Why did Trump choose Warsh this time? That is currently what we're reporting out. I'm so curious because ever since the DOJ investigation into Powell and the Fed was launched, it really threw a wrench into Scott Besson's process to get Trump to select a Fed chair because all signs were pointing to Kevin Hassett, the top economist in the White House, who had previously been a staffer at the Federal Reserve, getting the job.

9:09And this is something that Trump himself acknowledged. This morning when he truth socialed that Warsh is getting the job, his next post was, I love Hassett, I just want to keep him. So that's just confirmation that Hassett was the front runner for many, many months there. And Trump would say, I know who it's going to be. I have the guy's name in my head. I'm just not going to tell you. And so then you're looking at the other candidates. You had Rick Reeder from BlackRock. You had Chris Waller, who is currently a Fed board governor. And you had Kevin Warsh. and all of them had pros and cons in Trump world, right?

9:39BlackRock is not super popular among the MAGA folks. You have Chris Waller, who maybe he was seen as a steady hand and had shown that he thinks independently from what some people call the group think at the Fed. But still, he was maybe seen as too institutional of a person, even though now Trump has said all the other options would have been great. And then you have Kevin Warsh, who was sort of like the one who got away, maybe. And a lot of the time, things just come down to relationships for Trump. Who does he already know? And he didn't want to repeat the mistake. He did not know Jay Powell at the time of choosing him.

10:17He just knew him from interviews and reading up on him and studying him as he's making this election. Kevin Warsh, he's known now for a long time. One of the things that the Fed chair is going to have to have is credibility in the markets, right? And if you're just seen as a sycophant who's just doing the president's bidding, that would likely rattle markets and make people feel unsettled. But if you can make an economic argument for rate cuts that convinces people, then you're on better footing. So intellectual arguments that make the case for rate cuts without appearing like you're just only interested in doing the president's bidding, I think probably helped his case.

11:01Jerome Powell's term as Fed chair ends in May. And before Warsh can take over, he'll have to be confirmed by the Senate. What the Fed's transition period could look like, coming up next.

11:23Kevin Warsh's nomination as the next Fed chair comes at an intense time for the central bank. As Trump continues his relentless quest for lower interest rates, his administration has ramped up the pressure on the Fed and Fed Chair Jerome Powell. There's an ongoing Justice Department probe into renovations at the Fed's HQ and a Supreme Court case over Trump's attempt to fire Fed Governor Lisa Cook. Lawmakers on both sides of the aisle, including Republican Senator Tom Tillis, have registered their concern that the result of all these attacks could be a less independent Fed. We've got the Cook case and we have the Powell case.

12:01Both of those, to me, are instances of trying to undermine the credibility of the Fed independence. I asked Bloomberg's Amara Amokwe and Saleha Mosen how those dynamics could affect Congress's decision about whether to confirm Worsch. Tom Tillis, who is on the Senate Banking Committee that does the initial vetting of Fed nominees, has made clear that he is going to block any Fed nominee until this DOJ probe of Chair Powell and the Fed is resolved somehow. And then Senator Tillis came out after President Trump announced his pick and reiterated that. I am pleased with the nominee. I think that by most accounts, he's well regarded, but we still have to clear the current matter.

12:45And so that is a roadblock that the administration now has. Is the Department of Justice going to drop the investigation or find some other kind of off-ramp because Tillis has made clear that he's not going to allow this nomination to move forward. The Senate has to stand in the breach. We have to make sure that the Fed maintains its independence and we cannot reward any bad behavior. I think also you can expect that whenever Warsh does go before the committee, you are going to hear a lot of questions about Fed independence because the administration has really upped the fancy in putting pressure on the Fed from the DOJ investigation to the attempted firing of Lisa Cook.

13:23We did see Senator Elizabeth Warren, who was the ranking member on the banking committee, come out and be very critical of this nomination and basically tie that to the fact that there are questions around the Fed's independence. And she said that this nomination is essentially Trump's latest attempt to seize control of the Fed. I think you're really going to hear the senators, probably on both sides of the aisle at this point, given the DOJ investigation, really pushing Warsh on whether he's going to be independent and how he can assure the public and the markets that he's not going to just do President Trump's bidding.

13:55And where does all this leave current Fed chair Jerome Powell? What does a Warsh pick mean for him? Well, I mean, that's the big question, right? I think before the DOJ probe, the feeling among Fed watchers was that Jerome Powell was ready to leave. He has been on the Fed board for a long time. This is his second term as chair. And, you know, I think the expectation was that he was ready to go. The DOJ probe has changed everything. And we saw that in the extraordinary statement that Chair Powell released about the subpoenas that were issued to the Fed. At the FOMC meeting, Powell was asked about his future plans.

14:34And he, again, as he has in the past, declined to say whether he's going to stay or go. But I think the DOJ probe is kind of the bigger issue. It's bigger than who the next Fed chair is. It's really what is going to happen with that investigation that I think will ultimately determine whether Chair Powell stays or goes. And Celia, you've done a lot of reporting on the dollar. I'm wondering how markets more broadly reacted to this pick. Yeah, we saw markets rally. Markets are happy with the choice so far. It looks like it's someone who, as Trump said, acknowledged yesterday when he was teasing everyone with, I've made the decision you're going to hear about tomorrow.

15:12I don't know why he didn't just tell us right then in the moment. But he said this is going to be someone that the world of finance already knows well. And because of that, we're seeing a rallying that it's someone who understands how the institution works, understands hopefully if you understand how it works, that means you understand the importance of independence, but also someone who maybe Trump trusts. Therefore, there will be fewer tweets and social posts about the Fed chair being a bonehead and all the other names that Trump has called J-Powell. The relationship that Warsh would have with the committee matters a lot.

15:46And consensus or dissent matters a lot in how interest rates will be set moving forward. What do we know about how the current Fed board might receive Warsh? I mean, my understanding is that when there's a new chair, the fellow policymakers want to give that chair a fair shake, right? They want to give him the opportunity to lead. Obviously, this is someone who is nominated by the president and confirmed by the Senate. And I think the feeling is that that person should be given the benefit of the doubt to make their intellectual arguments and to lead the institution. But again, I don't think it's the case that policymakers are going to go along with something that they don't think is right, that they don't think is right for the economy.

16:33And so we will really see how, if he's confirmed, how Warsh interacts with his fellow policymakers and the extent to which he's able to bring them along with where he thinks policy should be headed. Jay Powell is known as having been really successful at this. And so it'll be interesting to see if Warsh is able to have that same influence and that same ability. I think this is something that often gets lost in conversations about the Fed. The Fed chair is just one of 12 people who votes on monetary policy. Okay, 12 people have to go in there, vote, and come to a consensus. Or not, right? And so we've seen President Trump really criticize Chair Powell and put all this pressure on him for not lowering rates.

17:23But the reality is the chair has to drive the committee that votes on interest rates toward a consensus. And over the last couple of months, we've seen that it hasn't always been easy for even Chair Powell to do that. We've seen dissents. We've seen people say, actually, we shouldn't be cutting rates or we should be cutting rates. And so even if Warsh is inclined to cut rates, he's going to have to convince his fellow policymakers that that is the right thing for the economy at that time. And we know that a lot of these policymakers are strong economic heavyweights in their own right, and they're not going to go along with something that they don't feel is in the best interest of the economy.

18:04And so it'll be really interesting to see how this all plays out. If we're in a situation where Warsh is pushing for lower interest rates and the rest of the committee is not willing to go along, how will President Trump react? Because no Fed chair can push through rate cuts on his own.

18:23This is The Big Take from Bloomberg News. I'm Sarah Holder. The show is hosted by me, David Gurra, and Juan Ha. The show is made by Aaron Edwards, David Fox, Eleanor Harrison Dengate, Patty Hirsch, Rachel Lewis-Kriskie, Naomi Ng, Julia Press, Tracy Samuelson, Naomi Shavin, Alex Sugiura, Julia Weaver, Yang Yang, and Taka Yasuzawa. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back on Monday.