According to The Wall Street Journal, former Fed Governor Kevin Warsh is President Trump’s nominee to be the next Chairman of the Federal Reserve. Warsh served on the Fed’s board from 2006 to 2011, a tenure that included the 2008 financial panic. He has been a vocal critic of the Fed’s post-crisis policies, especially its vast bond-buying programs known as quantitative easing, which he argued against in 2011. The Journal contends his hawkish stance on inflation and his desire to roll back the Fed’s expanded role in economic and social policy make him the right reformer for the job. They note he aims to reduce the Fed’s balance sheet, which ballooned from $800 billion when he joined to trillions today.
Warsh’s Core Critique
Here’s the thing: Warsh isn’t just another economist with a different model. His fundamental argument is that the Fed has suffered from “institutional drift.” Basically, he thinks it stopped being a narrow central bank focused on price stability and started acting like a “general-purpose agency of government.” That’s a huge deal. He points to the bond-buying that effectively funded federal deficits and the recent forays into climate and racial equity considerations as proof the Fed lost the plot. So his mission isn’t just about setting interest rates a quarter point differently. It’s about a philosophical reset to pre-2008, even pre-1970s, boundaries.
The PhD Question and AI Opportunity
The Journal swats away the criticism that Warsh lacks an economics PhD. And honestly, they have a point. Look at the track record of the PhD-laden Fed over the last 20 years: the housing bubble, missed forecasts, and the inflation debacle. A non-economist “can’t do any worse,” they quip. But the more interesting angle is how Warsh’s focus on money and price signals, rather than rigid Phillips Curve thinking (that growth = inflation), might position the Fed for what’s coming. If we’re on the cusp of a 1990s-style AI productivity boom, you don’t want a Fed that automatically slams on the brakes as growth accelerates. Warsh seems less likely to make that mistake, which is a big deal.
The Tough Road Ahead
Now, let’s not pretend this will be easy. He’ll face massive internal opposition from the Fed’s own staff and the “central-banking clerisy” – that’s a fancy dig at folks like Bernanke, Yellen, and Powell. Then there’s Trump himself, who famously likes low rates and will probably tweet about them. The Journal suggests Treasury Secretary Scott Bessent might run interference there. But the real fight will be institutional. Shrinking the balance sheet and refusing to venture into fiscal or social policy will be seen as radical. It’s a war on two fronts: inside the Eccles Building and in the political arena. The Senate confirmation will be the first major battle.
What It Means
This isn’t just a personnel change. It’s a potential regime shift. For decades, the Fed’s power and footprint have only expanded. Warsh represents a concerted push to reverse that, to try and put the monetary genie back in the bottle. Will it work? Can a single chair truly change a massive institution’s culture? It’s a huge gamble. The Journal clearly thinks the risk of continuing on the current path is worse. They see Warsh as the man to restore the Fed’s focus to its core mandate, which in their view is the only way to underpin stable, non-inflationary growth. Whether you agree with that or not, his nomination would signal the most profound rethink of the Fed’s purpose in a generation.
