DEEP DIVE: Meet Kevin Warsh

Why It Matters

Warsh’s appointment could steer the Federal Reserve toward supply‑side strategies, reshaping interest‑rate expectations and market volatility. The move underscores heightened political influence over U.S. monetary policy ahead of the 2024 election.

Key Takeaways

• Trump nominates Kevin Warsh as Fed chair.
• Confirmation likely smooth after Powell criticism ends.
• Warsh labeled “Supply‑Sider,” may shift policy focus.
• Potential impact on interest rates and market expectations.
• Highlights political pressure on Federal Reserve independence.

Pulse Analysis

Kevin Warsh’s nomination marks the latest intersection of politics and monetary policy in Washington. A former governor of the Federal Reserve Board and a longtime Trump ally, Warsh was tapped by the president in early February to replace Jerome Powell in May. Trump’s public criticism of Powell stems from rate cuts ahead of the 2024 election, which the administration believes advantaged the Democratic ticket. By presenting Warsh as the “central casting” candidate—young, articulate, and aligned with the president’s agenda—the White House aims to secure a smoother confirmation and re‑assert influence over the Fed’s agenda.

If confirmed, Warsh is likely to bring a supply‑side orientation to the Federal Reserve’s toolkit, a departure from Powell’s pragmatic pivot. Supply‑side monetary policy emphasizes lower borrowing costs to stimulate production, deregulation, and a focus on long‑term growth rather than short‑term inflation targeting. Markets would interpret such a stance as a signal for prolonged accommodative rates, potentially inflating asset prices while challenging the Fed’s credibility on price stability. Investors should watch early FOMC minutes for clues on Warsh’s approach to balance‑sheet normalization and inflation expectations.

The appointment also raises questions about the Fed’s institutional independence. Historically, chairs like Volcker and Greenspan insulated policy from partisan pressure; a Warsh tenure could revive concerns that monetary decisions will be swayed by electoral considerations. For businesses, a supply‑side tilt may lower financing costs, encouraging capital investment, yet could also exacerbate fiscal deficits if growth fails to materialize. Analysts will need to recalibrate models that previously hinged on Powell’s data‑driven pivots, incorporating a potential shift toward growth‑first rhetoric while monitoring Senate dynamics that could affect the confirmation timeline.

DEEP DIVE: Meet Kevin Warsh

Excerpt from the February 2 Morning Briefing of Yardeni Research.

The Fed I: Direct From Central Casting

I spent the weekend reading up on Kevin Warsh, who will replace Jerome Powell as Fed chair in May. My friends at the Financial Times asked me to write an 800-word op-ed on him. Sharing those thoughts with readers here leaves me with plenty of additional space to elaborate on what I have learned about the next Fed chair.

Warsh was nominated for the position by President Donald Trump on Friday. He must be confirmed by the Senate. That should be easy once the President calls off his judicial attack on Powell. Trump has made clear that he doesn’t like Powell, especially because the Fed lowered the federal funds rate (FFR) by 50 bps before the November 2024 presidential election, presumably boosting the Democrats’ chances of holding onto the White House. Powell continued to drop it further after Trump was elected, but the moves didn’t come fast enough or go low enough for Trump.

Trump likes Warsh partly because he looks the part of a Fed chair. In his typical style, Trump used the phrase “central casting” to describe Warsh, emphasizing that he possesses both the professional pedigree and the physical presence that Trump values in high-ranking officials. On Friday, Trump told reporters, “He’s very smart, very good, strong, young, pretty young. He was the central casting guy that people wanted.”

Now I know why I wasn’t a candidate: I’m too old, though I think I look the part. I’ve often offered to have Yardeni Research do what the Fed does for half the price. We would do it remotely, so the renovations on the Fed’s headquarters building could stop.

I’ve written two books on the Fed: Fed Watching for Fun & Profit (2020) and The Fed and The Great Virus Crisis (2021).

In the first one, focused on the Fed chairs, I wrote:

“Predicting monetary policy is obviously important for predicting financial markets. To do so, I learned early in my Wall Street career the importance of thinking like the Fed chairs, who head up the Board of Governors of the Federal Reserve System and preside over the Federal Open Market Committee (FOMC). I’ve had to think like Paul Volcker, Alan Greenspan, Ben Bernanke, Janet Yellen, and Jerome Powell. As I explain below, Volcker was the Great Price Disinflator, Greenspan was the Great Asset Inflator, and Bernanke was the Great Moderator. Yellen was the Gradual Normalizer. Jerome Powell, the current Fed chair, has been the Pragmatic Pivoter—so far, as of December 2019.”

My preliminary take on Kevin Warsh is that I’ll be dubbing him the “Supply-Sider,” for the reasons I discuss below.

(My two books are available to our accounts by clicking on the links above.)

The Fed II: A Man for All Seasons?

But this isn’t about me; it’s about the new candidate for the most important economic position in the world. Consider the following: