Tug of Warsh: will the new chair politicise the Fed?

0:10Hello and welcome to The Intelligence from The Economist. I'm your host, Rosie Blore. Every weekday, we provide a fresh perspective on the events shaping your world.

0:25Thailand holds an election this weekend and there's all to play for. But since the country's monarchy dominates politics and the economy, the people's will is only one part of the picture. Our correspondent explains what's at stake. And mention Hong Kong and you might think of the glittering skyscrapers, the night markets, the buzz of the streets. But today we highlight something that even visitors to the city are now enjoying, in praise of the humble Hong Kong tram.

1:01First up, though.

1:10Last year, we spoke on the show about who Donald Trump might pick as the next chair of the Federal Reserve. It's a decision with a big impact on America and the world economy. In the end, the person who got the nod was Kevin Walsh.

1:25The Economist Correspondent: In the whole country, I would say that this was the perfect candidate. This was not a surprise or anything. This was the man that's most qualified. Top student, best schools, everything was like perfect. Youngest person ever to serve on the Fed. Got the whole package. Trump lauded Walsh's lengthy CV, writing that, on top of everything else, here's central casting. So what can we expect from the Fed with Walsh at the top? Kevin Walsh might seem a slightly peculiar choice for Donald Trump to be making as his nominee for Fed chair. Archie Hall is our US economics editor. In some sense, he's a very classic choice.

2:07He used to be a Fed governor. He sort of looks like a stereotypical Wall Street banker from a 1980s movie. Someone who has lots and lots of experience dealing with crises and working with colleagues around the world. On the other hand, Trump wanted someone to cut rates. and while Walsh recently during the audition process has sounded very, very keen on cutting interest rates, historically he was famously a huge hawk, very worried about inflation, generally wanted to keep rates high, avoid stimulus and so it'll be interesting to see whether the Walsh we get is a Walsh that has pivoted recently to being a keen rate cutter or someone who's a lot more cautious about that.

2:45So Archie, for those for whom Kevin Walsh is not a household name, Just tell us a bit more about him. He was first put on the Fed by George Bush in 2006. So he's someone who's been around for a while. He's someone who, while he's now connected to Trump world, is not a traditional Trump character. He's more of an old guard Republican in that way. He was a bit of a controversial pick by George Bush. He was put on the Fed board at the age of 35, which was one of the youngest ever, if not the youngest ever. And potentially there were worries about his inexperience at the time. He then stayed on for about five years and was Ben Bernanke, who was Fed chair at the time, his ambassador to Wall Street.

3:23Watched experience before then was as a banker, a little bit at the White House. So he became the guy who helped work with the banks, orchestrated a lot of the bailouts. And as that time went on, he notably became a bit more disillusioned with the trajectory the Fed was taking. He worried a lot more than most of the Fed governors about the scale of Fed's interventions and particularly about how persistent they were, how even as the crisis went on, even as the economy started recovering, the recovery was quite sluggish. And so the Fed continued with its bond buying programs in a way that Walsh was very, very uncomfortable with.

3:56And that eventually culminated in him leaving the Fed in 2011. And since then, he's been in the private sector. So he's got the credentials to be Fed governor, but it sounds from what you were saying earlier, like the crucial element is this flip-flop over inflation. just explain that so anyone who trump was going to nominate for this job was going to be someone who is willing to cut interest rates because that's very very clearly what trump has been berating dron powell about for pretty much the entire duration of second presidency and very very clearly what trump wants and historically that's not who watches more recently he's been making claims that are superficially perfectly plausible.

4:39He's been saying things like, there's going to be a vast disinflationary wave from the coming boom in AI technology. There's going to be a huge, this is probably slightly less plausible, disinflationary effect of the deregulatory policies that the White House is pursuing. But I think there's a deeper political question behind that of, does he really believe that or is that what he's saying because he needs to do well in this convoluted years-long audition process to get Trump's nod? And then the difficulty going forward is that Trump complains about regularly. He picks someone to be Fed chair.

5:11This happened with Powell. They don't do what he wants and he can't fire them because Job is supposed to be independent. And so with Walsh, how much do we get this more loyalistic, this more political version of him that we've seen over the past few years? And how much do we get a bit of reversion back to who he was in the 2010s, in the late 2000s when he was last in the Fed? Okay, so where do you come down on that? What is the Fed going to look like under Walsh? it's a difficult question i'd start with interest rates that's what trump really wants to get down he's been pushing and pushing and pushing for big cuts to interest rates to pull down mortgages to pull down the cost of government borrowing and so on there i struggle to see wash making that much of a difference it's totally possible that he has some persuasive power as the fed chair and on the margin he might be able to sway the rest of the committee that set interest rates to slightly err on the side of keeping them a little bit lower.

6:04But those really big cuts that Trump's been demanding are going to be quite hard to push through a 12-voter committee where Walsh is only one vote and has very, very few allies and certainly very, very few out-and-out Trumpists on that committee. And so there I struggle to see Walsh making a huge difference to what we'd have otherwise outside maybe a big crisis where there might be scope to have more excuse to cut a lot. But he doesn't just do interest rates. What about the rest of his program? The place where Walsh really could make a difference, I think, is in the structure of the Fed and its balance sheet.

6:40So on the structure of the Fed, Walsh has called for a regime change. It's not entirely clear what that means, but there are a few hints. There was a lot of consternation in Trump world that the Fed went woke under Biden. And specifically, they focused a bit too much. They would argue on things like ESG and climate, things like inequalities and veered away from their really core keep inflation down, keep unemployment in the right place, bits of their mandate. That's mostly now gone anyway, but that might go further. And that could well be an excuse to do things like lower the number of economists at the Fed, reshape the structure, change the personnel and so on.

7:18The other area that's probably more consequential is the balance sheet. And so this is how many bonds the Fed holds as a result of its quantitative easing programs. And that's what, if you recall, Walsh pretty much resigned over when he was last at the Fed and has been veying against it. It's something he genuinely does really care about and something that's a bit technical enough that he's probably not going to get as much pressure or pushback from the president as on interest rates. And also something where he agrees with Scott Best and to the Treasury Secretary on the prescription, which is the US Fed should be holding a lot fewer bonds.

7:51The balance sheet should be a lot smaller and quantitative easing should be deployed a lot less as a sluggish economy fighting tool because it's something that in their view distorts the economy, also increases inequality and causes the Fed to have a footprint that's much bigger than it should be in the rest of the American economy. There I can imagine Walsh really getting somewhere. The question is that if he goes too far too fast and starts really trying to get rid of the Fed's bond holdings, which would mean trying to sell those bonds to someone else potentially, or at least got buying new ones, that could push up long-term interest rates and therefore push against what the president's trying to achieve and cause difficulties there.

8:30We were speaking during the process of discussions about the new Fed chair about the independence of the Fed in the future. With Walsh at the helm, is that still going to be a concern? Walsh has claimed consistently that he's a believer in the independence at the Fed. He actually gave a speech when he was last at the Fed, called an ode to independence. On the other hand, his behavior during the audition process for this job has very much been an impressed Donald Trump. So that's very traditionally not what the Fed chair is supposed to do. It's a much more political version of the job than we've seen earlier.

9:07And so while markets seem somewhat reassured by Walsh, not least, I mean, a number of very big names in the global economic central banking world have come out in favour of him. He's going to be under a lot more political pressure than almost any Fed chair in recent memory. And he's someone who at least over the past year or so has very much been to that political pressure. Archie, thank you so much. Thank you.

9:48I am at a mall in a middle-class part of Bangkok, and the People's Party is holding a rally here. I travel to Thailand in advance of its election, coming up on February 8th. Around the world, young people are making their voices heard on the street and at the ballot box. But they often play at the fringes of politics, calling for socialism or alt-right policies. Thailand is a rare example of a youth-led movement calling for free markets as well as more liberal politics. Thailand's People's Party is the latest vehicle for the country's young liberals and it is currently leading in the polls. Aaron Connolly is our Asia diplomatic editor.

10:32At the People's Party rally in Bangkok, there were a lot of young people, some older people too. Most of them were wearing the party's color, orange, and its triangle logo.

10:47And on stage was Pita Lim Jarenrat, the former leader of the party, who's a bit of a rock star.

10:56In 2023, Pita and his party won a plurality of seats in the lower house. But he was blocked from forming a government by the Thai Senate, whose members had been appointed by the army. Pita's party, then called Move Forward, was dissolved by the courts. Most of its members, however, regrouped into what's now known as the People's Party. Though unable to run for election again himself, the successor party has asked Pita to campaign heavily in the final fortnight before the election, when the People's Party hopes that it can win a majority in the lower house. Erin, there's a lot of context to fill in here for us.

11:30Thai politics is very complicated. Explain why Peter's party was dissolved and why he can't stand this time. Well, it all goes back to Thailand's strict Les Majestés laws that criminalize any criticism of the monarchy. And Peter and his party move forward had pledged to reform these laws. And the constitutional court ruled in 2024 that that campaign promise to reform these laws amounted to a violation of the constitution. As a result, he was banned from politics for 10 years and his party dissolved. So this replacement party, the People's Party, how are they doing? Well, the People's Party can't campaign anymore on reforming the Les Majestés law, but they're currently leading in the polls and they're asking voters to give them a majority this time so that they don't need to make any compromises in terms of forming a coalition.

12:21And in theory, that would give them a chance to form the government because for the first time in about a decade, the Senate will no longer play a role in choosing the next prime minister. but they're not doing as well as they did in 2023. To give you an example, before he was banned, Pita was favored by around 45 % of Thais as their next prime minister, but his successor, Nhatapong, is favored only by around 29%. The bigger problem for the People's Party is that many Thais now doubt whether a liberal party will ever be allowed to form government in Thailand. The courts have now dissolved three versions of this party and banned 27 of their leaders.

12:58And so some disillusioned Thais may still support the People's Party and its agenda, but they've lost the level of enthusiasm that they had in 2023. Let's pull out for a minute. What's really going on? What are the fault lines in Thai politics? The fundamental cleavages in Thai politics are really about the monarchy's role in the economy and in politics. The monarchy actually plays a really big role in the economy in Thailand, and it is repeatedly intervened in politics to favor conservative parties. So at this point in Thai politics, you really have a three-cornered contest. On the one hand, you have those young liberals of move forward and now the People's Party.

13:38And the second group is a populist party called Poetai that actually formed government over most of the last three years, but it was very badly damaged by some scandals that they endured in government. And then the third group is that conservative bloc, which tends to be very pro-monarchy and pro-military. So if the People's Party falters Who's the frontrunner? Well, the Thai Pride Party, led by Anutin Chanwira-kun, who is currently the prime minister at the head of minority government, it's really gaining momentum.

14:13Anutin is popular, and he's been very skillful at combining a populist economic platform that appeals to Thailand's populace with strong support for the monarchy and the army. Anutin's party was tiny in 2023. It won just 3 % of the proportional vote, but it's now pulling at 22%. And because Anutin is a dealmaker, he stands a better chance of forming a coalition, which any party leader will probably need to do to form government. The People's Party is very principled and says they won't work with certain parties. But Anutin told me in an interview at Government House that he will work with anyone, so long as they support the first two articles of the Constitution, which regard the role of the monarchy.

14:52Aaron at the start you talked about how popular the People's Party is if they don't win where does this leave their push for change in Thailand? Well I wouldn't count the People's Party out yet they really caught fire quite late in the 2023 campaign and there's a lot of uncertainty around the polling so they could exceed expectations but even if they do win it's possible that their leaders will again be banned and that the courts will find some reason to dissolve the party. So long as the monarchy continues to play this very interventionist role in Thai politics of the sort that we've become accustomed to over the last several decades, it's hard to see how change will come to Thailand.

15:33Aaron, thank you very much. Thank you, Rosie.

16:06When I moved to Hong Kong a couple of years ago, I began by seeing a lot of the tourist hotspots. Doing things like going across the harbour on the staff ferry or clambering up the peak to try and see the sunset. But I quickly discovered, on a tip from a colleague, that actually one of the best ways to see Hong Kong was by taking the humble Hong Kong trams. Emma Irving is a news editor for The Economist and is based in Hong Kong. These open windows that give you unfettered access to the sights and sounds and often the smells of the city. And so trundling home from the Economist offices in Taiku across to the other side of the island where I lived, I could really see the city transform into night.

16:51Things like the night markets spinning across the streets or listening to the Cantonese that was hollering through the wet market. It really made me so aware of how vibrant and dynamic the city is and also of quite how far I was from home. So it was no surprise to discover that the trams are actually becoming really popular with tourists.

17:14The Economist Correspondent: Yeah, my person is coming over to Hong Kong. Yeah. I'm really Japanese. Ah, nice. Yeah. So actually he's looking forward to, you know, taking this tram. Ah, so you're coming specifically to go on the trams. Yeah, yeah. Amazing. Yeah. Yeah, bye. Tourists actually now account for around 15 % of the 150 ,000 tram trips taken each day in Hong Kong. And that share has stayed the same even as the number of tram takers has grown in recent years. One of the reasons for that is that the trams are a really inexpensive way to see what is a very expensive city. An average journey costs just 42 US cents a trip.

17:59And that relates to a wider trend. So although more tourists are visiting Hong Kong, they're actually spending less. Visitor numbers rose by around 12 % to nearly 50 million last year. But actually the average amount spent by each overnight visitor fell by 3.5 % in the first half of 2025.

18:24One of the reasons why tourists are spending less is because actually around three quarters of visitors now come from mainland China, where cheap and cheerful travel is on the rise. That's because the mainland has suffered from a property slump and weak consumer sentiment which has meant the visitors are more reluctant to part with their cash. And poorer Chinese people also make up a larger share of travellers than they did in the past. But now the government is trying to turn things around and it's doing that mostly by betting on pretty flashy attractions. It's unveiled a blueprint for tourism development that focuses on things like better horse racing and big pop concerts.

18:59It hopes that by 2029, those kinds of diversions will bring in around 120 billion Hong Kong dollars. But in fact, it might be the humble tram network that keeps Hong Kong's tourism on track.

19:36That's all for this episode of The Intelligence. See you back here tomorrow.