Who Is the New Fed Chair?

0:05This morning, President Trump made a huge announcement, one that could impact the economy for years to come. What's the big news today, Nick? Well, the big news is that Kevin Warsh will be the next Fed chair. Our colleague Nick Timeros covers the Federal Reserve. We've been waiting for months, really. It was really, you know, a pageant. It was like an episode of his old TV show, The Apprentice. I called it The Apprentice Fed Edition because he had everybody sort of guessing. They started with 11 candidates and then they whittled it down to four. They got to interview with Trump. And there was some swirl of intrigue this week.

0:48But in fact, the person that Donald Trump picked, Kevin Warsh, is the person that a lot of people thought was going to get it from the very beginning. And what do you make of this choice, Kevin Warsh? Kevin Warsh is a Fed insider turned critic. He is an establishment Republican turned Trump supporter. This isn't the first time you've heard me in the last decade say we need regime change at the Fed. He spent five years at the central bank beginning 20 years ago. So he knows the Fed. But he's also been a vocal advocate recently for Donald Trump's policies. The question I think a lot of people on Wall Street are going to ask in the coming days and weeks is, which Kevin Warsh ends up being the Fed chair?

1:43Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Friday, January 30th.

1:56Coming up on the show, Kevin Warsh and a new era at the Federal Reserve.

2:20Patrick Ludwig Hansch, Leiter der Wirtschaftsforschung bei Kreditreform, warum Geschäftsmodelle heute schneller an ihre Grenzen stoßen und weshalb Insolvenzen, so hart sie auch sind, eine funktionierende Marktwirtschaft sichern. Im Podcast-Kanal Gute Geschäfte von Kreditreform. Überall, wo es Podcasts gibt.

2:45Kevin Warsh is 55 years old, originally from upstate New York. He got his bachelor's degree from Stanford University, where he made connections in conservative economic circles. And he was seen as just a very brilliant up-and-comer. He married Jane Lauder, an heiress to the Estee Lauder family fortune. His father-in-law is Ron Lauder, who is a former classmate of Donald Trump's. Warsh also got a law degree from Harvard and worked as a banker at Morgan Stanley. And in 2002, there was an economic advisor at the White House who calls up one of Warsh's old professors and says, hey, I need to hire a really smart, hardworking person.

3:31Have you got anybody? And the economist professor says to the White House advisor, I've got the guy. He's brilliant. And that was Kevin Warsh. While working in George W. Bush's White House, Warsh got to know economist Ben Bernanke, who went on to lead the Federal Reserve. And from that, he scores an appointment to the Fed board himself. In 2006, at age 35, he became the youngest person ever to become a Fed governor. Here's Warsh at a Federal Reserve board meeting in 2007. You've done it with a rigor that I think is quite representative of the Federal Reserve. And then he has a ringside seat to the financial crisis in 2008.

4:17During that period, one of the most significant moves the Fed made was something called quantitative easing, buying treasury bonds to stabilize the economy. Initially, Warsh was on board with the policy. But by the time he left the Fed in 2011, he had his doubts. He is disillusioned with some of the easy money policies that Bernanke is pursuing. And so he becomes more critical of the Fed after he leaves. The worry was that all of the money sloshing around in the economy would show up either in inflation or asset bubbles. Warsh writes regular essays, op-eds, gives interviews where he's pointing out what he thinks are the problems with the policies the Fed is pursuing.

5:01That economic policy provokes our adversaries to take us on, so that makes the country less prosperous and less peaceful. Warsh's concerns drew a lot of attention, including from President Trump, who in 2017, during his first term, was choosing a new Fed chair. The choice came down to Warsh and Jerome Powell. Ultimately, Trump chooses Powell. Why didn't Trump choose Warsh at the time? What was sort of the idea there? Well, I talked to somebody who spoke with the president right as Trump was making that decision. And this was somebody who said, I think you should pick Kevin Warsh. And the president said, well, I want somebody who favors low interest rates.

5:46So I think one way to read this is to say Trump saw the long track record, the written record that Warsh had published and said, well, maybe this guy doesn't actually want lower interest rates. He also told people he thought Warsh looked too young. Warsh is 17 years younger than Powell, the silver-haired former private equity investor. And so even though Warsh was very well positioned, Trump saw Powell, saw somebody who had supported the lower interest rate policies of the previous years. And so he went with Powell.

6:21But things didn't go as Trump expected. Powell gradually raised interest rates starting in 2018. And Trump made his displeasure with Powell public. During Trump's second term, his frustration reached a boiling point. Meanwhile, Warsh had become more vocal about lowering rates. Warsh flipped and said the Fed didn't need to raise interest rates anymore. He began to be more critical of the policies Powell pursued. And that was especially true in 2021, when inflation became a more evident problem. Warsh again said, you shouldn't be purchasing all these securities. You're going to drive up inflation.

6:59And he was right. In the past few years, one of the main sticking points between Trump and Powell has been interest rates, as you've said. Trump has said he wants rates as low as 1%. What has Warsh said about that? Kevin Warsh hasn't spoken publicly, to my knowledge, since an appearance on Fox News at the end of October when he said, yes, the Fed should cut interest rates. Here's Warsh speaking with Fox's Maria Bartiromo. And given the fact that inflation is still pretty tame, should they be doing a string of cuts into 2026? Yeah, well, I think that they've made a series of mistakes, not just in the last year, but the last five or six years.

7:37And I think their track record is really quite poor in forecasting the growth of the economy from policies like the ones the president put in place. He had an opinion piece in our pages in November where he said the economy was poised to boom if only the Fed had better leadership. A lot of analysts expect Warsh will push for some interest rate cuts once he takes over as Fed chair. Warsh has criticized the models and the framework that the Fed uses. He thinks the PhD economists have sort of been slaves to these models that say if the economy grows faster and more people have jobs and their wages go up, that that's going to create inflation.

8:24Because for a lot of economists, that is sort of the main model they have for the inflation-generating process. And Warsh says that's really not how it works at all and you don't need to worry so much about it. What Warsh is concerned about is a Federal Reserve that is an obstacle to economic growth because it's entrenched in its own ways. He talked about this in a podcast interview last year. What the Fed needs is more robust discussion of ideas, less groupthink. And in an op-ed for the Wall Street Journal in November, Warsh wrote that reforming monetary policy at the Fed would lead to a stronger economy and lower inflation.

9:02And so when Trump announced his pick, what did he say when he decided finally that it was Warsh? Trump said, I've known Kevin for a long period of time. I have no doubt he'll go down as one of the great Fed chairmen, maybe the best. And then he added this line, which is vintage Trump. On top of everything else, he is central casting. Trump cares about the look. You have to have the look that Donald Trump wants, handsome. He's kind of aged into his dignified look. He was too young in 2017. He's gotten maybe a few more gray hairs at the temples, that sort of thing. You know, Kevin Warsh wears these very well-tailored suits that don't require a belt.

9:45He definitely comes out of central casting. Trump is right about that. What are some of the bigger economic problems that Warsh will need to deal with as Fed chair? Well, so he inherits an economy that has been doing okay on the surface, but job growth has slowed a lot. And there's a big mystery there. Is it slowing because we have less immigration? Is that a problem that we're not adding a lot of jobs if the unemployment rate is staying stable? The Fed is now entering its sixth year with inflation above its 2 % goal. and if you say you're going to meet a goal and you go for many years without hitting it, does that erode your credibility?

10:31And then apart from that, there are just enormous questions over what effect AI is going to have on the labor force and what can a central bank that raises interest rates to deal with a normal business cycle do if you're entering some sort of big structural shift. But before Warsh can face those economic challenges, he'll have to face Senate confirmation. That's next.

11:20Yeah, and she answers questions. 24-7 and without a German. That's just the app that understands us. Steuern completed? Safe! With Wieso Steuer. Now try it out.

11:38Kevin Warsh is likely to be confirmed by the Senate to be the country's new Fed Chair, since Republicans have a majority. But there's at least one wrinkle ahead. The current Fed chair, Jerome Powell, is currently under criminal investigation by the Department of Justice related to the renovation of the Federal Reserve Building. Powell has denied any wrongdoing. The investigation has lawmakers from both parties worried. They say it looks like an attempt to interfere with the independence of the Fed. One in particular, Tom Tillis, a Republican senator from North Carolina, has said he will not vote for any Fed confirmation until this whole probe is resolved.

12:16And he repeated that view on Friday morning after Trump's announcement. We've got the Cook case and we have the Powell case. Both of those, to me, are instances of trying to undermine the credibility of the Fed independence. He said, Warsh is qualified, but my vow still stands. I'm not going to move any Fed nominees until this probe gets resolved. And so it seems very likely now that the White House and the Department of Justice are going to have to deal with this here because otherwise it's possible that they just won't get the new Fed chair confirmed by May. So Senator Tillis' concern here is about Fed independence.

13:00What do we know about how Warsh feels about that? Well, so more recently, Warsh has sort of poo-pooed or waved away concerns from the central banking priesthood that says you really shouldn't have a president attacking the Fed in this way. It shakes markets' confidence that the Fed's going to be allowed to do its job. And Warsh has not joined in sort of the concerns about Fed independence. But when Warsh was a Fed governor in 2010, Warsh gave a speech, an ode to Fed independence. And he said very clearly, if central bankers care about anything, they should care about how history will remember them.

13:45And you cannot have a White House that's calling the shots. So Warsh's view is different today from what it was 15 years ago. And a lot of people I talk to have questions about, well, which Kevin Warsh shows up at the Fed? Is it the one who was very worried and kind of took the standard central banker line on Fed independence in 2010? Or is it the one who last year sort of waved away the concerns about Trump's attacks and said, you know, the Fed has sort of brought a lot of this on itself?

14:21Given everything swirling around Warsh's appointment, how would you describe this moment of transition for the Fed? This will be the most unusual Fed transition in generations. Kevin Warsh is promising complete disruption. He's gone on Fox News calling for regime change. That means regime change in how we're thinking about inflation, how we're conducting policy, how we're communicating. It's also regime change in terms of how we're supervising and regulating banks. But still, it now means there are questions about, well, what's the Fed going to do with their asset holdings? Could they do something completely different?

15:02What's he going to do with the Fed's staff? Is he going to fire a bunch of economists because, you know, we really don't need all these guys anymore? Those are some questions we're going to get answers to, not right away, but certainly as the year unfolds.

15:20So it sounds like we're not going to know how much things are going to change at the Fed, like, immediately. Here's how you should think about it. You know, the Fed is like an aircraft carrier. It can turn, but it can't turn on a dime. There are 11 other people who are going to vote on interest rates. Warsh is going to have to build a consensus with his colleagues. And that's going to take time. You don't just come in and snap your fingers and everything's going to change. So it's very possible that four years from now, when we look back at the Warsh Fed, we'll say, yeah, they did change direction.

15:53But I would be very surprised if it's something that happens right away. So, Nick, what are you watching out for next? Well, we've ended one bout of uncertainty over, all right, who is Donald Trump actually going to pick to lead the place? And now we have a new round of uncertainty, which is how is the new chair going to settle into the job? Powell has faced a lot of challenges in dealing with the White House and Trump during the last year. Worsh could have it worse. And the reason is because when Powell took the job, there wasn't any explicit expectation that he was going to try to get the president the interest rate policy the president wanted.

16:38That wasn't a part of the conversations at all. But it is now. It's very explicit. I'm going to pick somebody who will do what I want on interest rates. So how does that unfold? Well, sounds like there's going to be a lot to keep you busy in the coming months. There is never a dull moment on this beat right now.

17:12That's all for today, Friday, January 30th. Additional reporting in this episode by Matt Grossman. The Journal is a co-production of Spotify and The Wall Street Journal.

17:30The show's made by Our engineers are Griffin Tanner, Nathan Singapak, and Peter Leonard. Our theme music is by So Wiley. Additional music This week from Peter Leonard, Bobby Lord, Emma Munger, Nathan Singapok, Griffin Tanner, Audio Network, and Blue Dot Sessions. Fact-checking this week by Mary Mathis.

18:07Thanks for listening. See you on Monday.