Trump names replacement for Fed Chair Jerome Powell: Who is Kevin Warsh?

Jerome Powell has been a punching bag for Donald Trump, despite having nominated him to the position in his first term, over the Fed chair’s resistance to do his bidding and lowering interest rates as the president has demanded. However, Powell’s term as head of the central bank is coming to an end in May giving Trump the opportunity to put someone new in the role.

On Friday, Trump named that person, Kevin Warsh, who he had considered in 2017 but went with Powell instead. The 55-year-old financer is also a former governor of the Federal Reserve, serving between 2006 and 2011, when he stepped down.

Who is Kevin Warsh, the man Trump wants to head the Fed?

Warsh was appointed by President George W. Bush to whom he had been an economic advisor. Just 35 years old at the time, he became the youngest ever appointment in the history of the Federal Reserve.

He played a crucial role in the 2008 financial crisis helping to negotiate sale of Bear Stearns to JPMorgan Chase, using his Wall Street connections, he worked for Morgan Stanley after graduating from Harvard Law School, as well as the sale of other failing banks. He also had a hand in the bailout of the American International Group.

During his tenure, the so-called inflation hawk often raised concerns about inflation despite it being near or below the Fed’s 2% target. Warsh was also critical of the central bank’s policy of rate cuts and quantitative easing.

While he voted for a second round of the latter in November 2010, he publicly expressed his doubts in an article in the Wall Street Journal days later. Then a few months after that he resigned from his Fed governorship.

The inflation hawk who criticized interest rate cuts now favors them

One of Trump’s biggest beefs with Powell has been his resistance to cutting interest rates faster. While he was a Fed governor, Warsh argued for tighter monetary policy, including during the Great Recession when the Fed slashed rates to stimulate the economy in order to help lower the unemployment rate.

Like Trump, Warsh has been critical of Powell and told Larry Kudlow on his Fox show that there needs to be a “regime change” to bring in “new sets of policies, new way of thinking about economic growth, new understanding of what really drives inflation.”

These days, Warsh has put forth arguments that interest rates could be cut, saying that Trump’s tariffs won’t lead to persistent inflation. Furthermore, through a reduction of the Fed’s bond holdings, he argues rates could be cut without resulting in inflation rising. However, economists disagree.

The Niskanen Center argued in 2017 that his misjudgment on the policies implemented during the Great Recession “was indicative of a broader mindset, one that has had devastating macroeconomic implications” in other countries. At the time, the non-partisan think tank argued that he should not become Fed chairman due to his lack of creativity in the face of that financial upheaval and potentially in future ones, as well as “his unwillingness to recognize his mistakes.”

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