WASHINGTON, Jan 30 (Reuters) – President Donald Trump on Friday chose former Federal Reserve Governor Kevin Warsh to head the U.S. central bank when Jerome Powell’s leadership term ends in May, giving a frequent Fed critic a chance to put his idea of monetary policy “regime change” into practice at a moment when the president has pushed for more control over the central bank.
“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. On top of everything else, he is ‘central casting, and he will never let you down,” Trump said in announcing his latest move to put his stamp on a Fed he persistently lambasts for not caving to his demands for lower interest rates. The position requires confirmation by the U.S. Senate.
The Fed has long been seen as a stabilizing force in global financial markets due in no small part to its perceived independence from politics.
Trump’s escalating efforts to test that independence, including in January his Justice Department’s decision to open a criminal probe into Powell, have set the stage for a challenging Senate confirmation process for any successor. It has also opened the door to the possibility that Powell, who called the criminal probe a pretext to pressure the Fed into setting monetary policy as the president wishes, may opt to stay on at the Fed even after his chair term is up in a bid to safeguard the Fed from political capture.
The nomination caps a months-long process that often resembled a public audition as Warsh, White House economic advisor Kevin Hassett and other top contenders – including sitting Fed governor Christopher Waller and Wall Street insider Rick Rieder – appeared regularly on television to tout their credentials and showcase their thoughts about the economy and Fed policy.
Trump in August named White House adviser Stephen Miran to the Fed, where he has become a leading proponent of the aggressive rate cuts that Trump has long sought. Trump has also tried to force out Fed Governor Lisa Cook in a battle now before the Supreme Court that, if successful, would mark the first time a president has ever fired a Fed policymaker.
While Warsh is no White House insider, he has been a confidant of the president and a guest at his Florida estate, and looks poised to push many of Trump’s priorities as a “shadow” Fed chair until Powell’s chair term ends in mid-May.
A lawyer and a distinguished visiting fellow in economics at Stanford University’s Hoover Institution, Warsh has said he believes that the president is right to press the central bank for steep interest-rate reductions, and has criticized the Fed for underestimating the inflation-busting potential of productivity growth supercharged by artificial intelligence.
He has also called for a broad overhaul of the central bank that would slim its balance sheet and ease bank regulations.
Warsh, 55, was nearly named to the job in Trump’s first term before being passed over for Powell, and since then has kept a steady public profile through speeches and essays that have taken Powell and his colleagues to task for their management of the Fed’s balance sheet, interest rates and other actions.
He now will be responsible for an institution he has said should scale back its footprint in the economy and change the way it manages monetary policy.
It is not clear how the pick may affect the trajectory of rates in the short term. The Fed’s three rate cuts in 2025 brought short-term borrowing costs to the 3.50%-3.75% range. In January, citing stronger growth and a stabilizing labor market, it left rates on hold and signaled a pause ahead; markets for now don’t expect another rate cut until the next chair is in place, in June.
With a background on Wall Street, including as a partner in the office managing the wealth of investing giant Stanley Druckenmiller, and family ties to major Trump supporter Ron Lauder, Warsh will be under an intense spotlight to prove his independence from the president.
As a Fed governor from 2006 to 2011, Warsh’s familiarity with Wall Street executives and investors made him a chief liaison to the financial community for then-Fed Chair Ben Bernanke during the 2007-2009 financial crisis.
Though he did not dissent against the massive bond purchases Bernanke used to nurse the economy out of what proved a long downturn, he was concerned they would stoke inflation and eventually resigned. Warsh’s inflation concerns proved misplaced, but the large size of the Fed’s balance sheet, and the role it plays in managing interest rates, have remained a concern.
He now argues that shrinking the Fed’s big balance sheet would allow it to “redeploy” excess liquidity in financial markets to the real economy by lowering the Fed’s policy rate.
(Reporting by Susan Heavey and Ann Saphir; Editing by Dan Burns, Andrea Ricci, Alison Williams and Hugh Lawson)
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