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Don’t expect Kevin Warsh, Trump’s nominee to chair the Fed, to have smooth sailing, either at his confirmation hearing or at the Federal Reserve—if he does manage to get confirmed. The commentators have pointed to the challenge of reconciling Trump’s demand for low interest rates with the imperative of not spooking the bond market. But that’s the least of it.
In his announcement on Truth Social of the Warsh appointment, Trump listed Warsh’s biographical accomplishments and then added, “On top of everything else, he is ‘central casting’ and he will never let you down.”
That was probably the only part of the announcement that Trump wrote himself. According to The Wall Street Journal, Trump repeated how much Warsh looked like a central banker at a black-tie speech Saturday night to a private group, the Alfalfa Club.
But this makes Warsh sound like another Pete Hegseth, an empty suit who just looks the part. In fact, that’s uncomfortably close to the reality.
Though Warsh served on the Fed for five years as a George W. Bush appointee, a reading of his remarks over the years suggests a stunning ignorance of what the central bank actually does and its policy tools. And he has an almost perfect record of getting predictions wrong.
For instance, when the economy risked total collapse in 2008 because major banks were insolvent, lowering interest rates to near zero was insufficient. The Fed had to devise a strategy of recapitalizing the banks with massive bond purchases.
Fed leaders gave this strategy the disarming name of “quantitative easing.” Warsh left the Fed in March 2011, in part because he opposed the policy. Throughout the Great Recession that followed the financial collapse, Warsh loudly and repeatedly expressed concern about bond purchases driving inflation—that never came, as the recession dragged on.
The Treasury failed to use the leverage of all that capital infusion to insist that the big banks be broken up. But the bond buying saved the economy. When the COVID pandemic produced another abrupt recession, the Fed turned to large-scale bond purchases again.
Warsh has repeatedly condemned this tool. He blames Fed bond buying for allowing government to run steep deficits and ultimately unleashing inflation.
“Each time the Fed jumps into action, the more it expands its size and scope,” he said last April. “More debt is accumulated … more capital is misallocated … more institutional lines are crossed.”
In fact, the deficits are rooted in tax cuts for the rich and emergency COVID spending, not in Fed bond purchases.
And though Trump has put him on the Fed expressly to lower interest rates, Warsh over the years has sounded more like a monetary hawk, criticizing the Fed for keeping rates too low. The kindest thing you can say about Warsh is that he is a situational hawk. As Paul Krugman has observed, “He calls for tight money and opposes any attempt to boost the economy when Democrats hold the White House.”
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