In many ways President Donald Trump\u2019s decision to pick former Federal \u200bReserve governor Kevin Warsh to head the central bank is a relatively orthodox choice. To many, \u200dhe is not the ardent interest rate slasher the U.S. president seemed to want. But maybe Trump is just happy having a scapegoat at the Fed.<\/p>\n
t took less than six months between Trump appointing current Fed Chair Jerome Powell in late 2017 – after endorsing him as someone with \u201cconsiderable talent and experience\u201d – and then publicly regretting the choice as interest rates climbed.<\/p>\n
A year later he was calling Powell \u201cclueless.\u201d Since \u200dTrump\u2019s return to the \u200bWhite House last year, the insults have worsened, with threats to fire him and even talk of a potential criminal indictment \u2014 all coming even as rates fell, in the president\u2019s view, \u201ctoo late.\u201d<\/p>\n
Will it be different this time?<\/p>\n
Trump announced on Friday that Warsh was his candidate to lead the Fed, ending months of interviews and teasing amid widespread political and investor hand-wringing over whether the once fiercely independent central bank is being politically captured.<\/p>\n
But the initial market reaction to the decision, which still needs congressional confirmation, was modest. With a blizzard of other domestic and global influences swirling, it was hard to detect any sudden or pointed shift in the dollar, Treasury \u2060bonds or stocks that indicated fresh anxiety.<\/p>\n
A basic test of that was that futures still pointed to roughly two Fed rate cuts in 2026 \u2014 about where they\u2019ve been since last year. The shaky dollar firmed a bit on the news, and the Treasury yield curve steepened slightly.<\/p>\n
With a track record as a Fed board governor under Ben Bernanke\u2019s leadership through 2011, and an outside career in academic economics, Warsh has his own somewhat controversial take on central banking. But he speaks the lingo and operates mostly within the usual professional parameters.<\/p>\n
Likely a requirement for securing the job, he clearly favors a resumption of Fed policy easing. How far he \u200cwants to go is less clear \u2014 and, since he still \u200dhas only one of 12 votes at each Fed meeting, his ability to get the rest of the policymakers on board will be key.<\/p>\n
As Trump said at the World Economic Forum \u200din Davos last month: \u201cEveryone that I interviewed is great. Problem is they change once they get the \u200cjob.\u201d<\/p>\n
Warsh appears to chime with Treasury Secretary Scott Bessent and former White House adviser, now temporary Fed governor, Stephen Miran in thinking that an artificial-intelligence-driven productivity \u2060boom will let the economy grow faster without risking higher inflation.<\/p>\n
While that seems like theoretical cover for more rate cuts, there\u2019s no consensus at the Fed that such productivity boom is actually underway, and some argue it would \u200bjust raise the so-called \u201cneutral\u201d level of interest rates in the economy instead.<\/p>\n
More pointedly, Warsh is opposed to using the Fed\u2019s balance sheet for monetary policy purposes, and, in general, favors keeping it at a lower overall level.<\/p>\n
To the extent that investors in long-term Treasuries and stocks view future use of the Fed\u2019s balance sheet in a crisis as a potential \u201cFed put\u201d on their holdings, Warsh\u2019s stance could strike some as hawkish, and the steeper yield curve may reflect that. While he is not hugely out of step with the central banking world on that issue, any push to further shrink the Fed\u2019s balance sheet of bonds from here could \u200bunsettle markets, given the Fed only halted its rundown late last year.<\/p>\n
Even though some argue that sort of \u201cquantitative tightening\u201d might allow for short-term interest rates to fall, it would likely unsettle the long end of the bond market – not least as countervailing bank deregulation to boost liquidity is already largely priced in. And if lowering mortgage rates is a hot-button political issue for Trump right now, high long-term yields won\u2019t help.<\/p>\n
Pending his first comments as \u201cshadow Fed Chair,\u201d Warsh\u2019s specific rate view is less clear, though many Fed watchers currently assume he would favor less easing than the roughly halving of current rates that both Trump and Miran seem to advocate right now. Although Warsh\u2019s family is widely reported to be close to Trump, the two may not agree exactly on the appropriate level of interest rates, even if both want them lower. And even if they \u2060did agree, Warsh must now make his case to the rest of the Fed\u2019s policy committee.<\/p>\n
Fellow Trump-appointed doves Christopher Waller and Michelle Bowman would likely back him on more easing.<\/p>\n
But if Miran \u2060gives up his board seat for Warsh and Powell remains as a governor after stepping down as chair in May, the doves would still be a minority of the seven board seats. And across the 12 voting members of the Federal \u200cOpen Market Committee this year, eight are considered either centrists or hawks on policy.<\/p>\n
It may be that simply having Warsh preside over any rate cuts will be enough to please the president, although the last three cuts under Powell didn\u2019t seem to change Trump\u2019s mind about him.<\/p>\n
In the end, maybe Trump knows deep down that halving interest rates is unrealistic and he just likes the option of blaming the Fed for any problems in the economy to deflect any heat from the administration.<\/p>\n
Warsh will need all his considerable talent and experience.<\/p>\n","protected":false},"excerpt":{"rendered":"In many ways President Donald Trump\u2019s decision to pick former Federal \u200bReserve governor Kevin Warsh to head the…\n","protected":false},"author":2,"featured_media":449172,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":{"0":"post-449171","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-alberta","9":"tag-arts-news","10":"tag-bc","11":"tag-breaking-news","12":"tag-breaking-news-video","13":"tag-british-columbia","14":"tag-business","15":"tag-ca","16":"tag-canada","17":"tag-canada-news","18":"tag-canada-sports","19":"tag-canada-sports-news","20":"tag-canada-trafficcanada-weather","21":"tag-canadian-breaking-news","22":"tag-canadian-news","23":"tag-economy","24":"tag-education","25":"tag-environment","26":"tag-federal-government","27":"tag-foreign-news","28":"tag-globe-and-mail","29":"tag-globe-and-mail-breaking-news","30":"tag-globe-and-mail-canada-news","31":"tag-government","32":"tag-life-news","33":"tag-lifestyle","34":"tag-local-news","35":"tag-manitoba","36":"tag-national-news","37":"tag-new-brunswick","38":"tag-newfoundland-and-labrador","39":"tag-northwest-territories","40":"tag-nova-scotia","41":"tag-nunavut","42":"tag-ontario","43":"tag-pei","44":"tag-photos","45":"tag-political-news","46":"tag-political-opinion","47":"tag-politics","48":"tag-politics-news","49":"tag-quebec","50":"tag-sports-news","51":"tag-technology","52":"tag-travel","53":"tag-trudeau","54":"tag-us-news","55":"tag-world-news","56":"tag-yukon"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/449171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=449171"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/449171\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/449172"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=449171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=449171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=449171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}