Who is Kevin Warsh? Trump’s Fed Chair nominee and what he means for your money

President Donald Trump will nominate Kevin Warsh as the next Chair of the Federal Reserve. If confirmed by the Senate, Warsh would take over for Jerome Powell, whose 8-year tenure at the helm of the Fed saw the stock market nearly triple in value. Warsh has long been a critic of the Fed, and may seek changes to both how the Fed sets interest rates, how it regulates banks, and how it interacts with financial markets. Here is our early look at what Kevin Warsh as Fed Chair could mean for your money.

How did Kevin Warsh get the job?

Warsh began his career in investment banking, then was an advisor to the George W. Bush White House in his early 30’s. He was appointed to the Fed Board in 2006 at the age of 35, the youngest ever to serve in that capacity. Warsh’s work on the Fed Board during the 2008 Financial Crisis was praised by then Fed Chair Ben Bernanke in his 2015 memoir. Warsh’s extensive contacts on both Wall Street and within the Republican party made him an important conduit for the Fed.

Since leaving the Fed in 2011, Warsh has been consistently critical of his former employer, advocating for various reforms. He has criticized the Fed’s “mission creep” in getting involved in bank regulation. He also took Powell to task over waiting too long to hike rates in the post-COVID period. He also has said the Fed’s use of “forward guidance” only served to “coddle” financial markets.

Warsh’s consistent calls for reform at the Fed aligns himself well with President Trump and Treasury Secretary Scott Bessent. The current administration hasn’t been shy about criticizing the Fed, not just on interest rates but also on the idea of “mission creep.” Warsh has also recently called for the Fed to cut interest rates, saying that AI will create a productivity boom and thus bring down inflation. It was well known that President Trump would only nominate a Fed Chair that supported lower rates.

At one time it seemed that Trump was set to nominate Kevin Hassett, one of the President’s top advisors, to the Fed job. However some advisors warned that Hassett could be seen as too close to the President, and not independent enough. The White House may have viewed Warsh as a good middle ground: independent enough to placate Wall Street, but still aligned that interest rates should come down.

Is Warsh actually a hawk?

One criticism of Warsh is that for most of the last two decades, he has generally warned about letting inflation go too high. In economics parlance, this is typically called a “hawk.” While still at the Fed in 2009 and 2010, he worried that the Fed’s buying of Treasury bonds could spark inflation. In 2016, he warned that keeping rates near zero risked inflation. Then when inflation finally did lurch higher in the aftermath of COVID, Warsh criticized the Fed for focusing too much on economic growth and not enough on inflation.

As we said above, today Warsh seems much less worried about inflation, saying that the Fed should cut despite the fact that inflation is well above the 2% target. That sure sounds like Warsh has shifted from a “hawk” to a “dove.”

Naturally this has left investors a bit confused. Has Warsh’s economic philosophy evolved? Has he really been convinced to ignore high inflation, betting that AI will solve it? Or did he only advocate for lower rates knowing that was a requirement to get the job?

This is one reason markets are concerned about Warsh as Fed Chair. We don’t know what we’re going to get. Is it the hawkish Kevin Warsh from 2006-2024? Or the dovish Warsh from 2025 and 2026?

The battle over the balance sheet

One of Warsh’s biggest critiques, and potentially the most important change he could bring to the Fed is related to the Fed’s balance sheet. During the 2008 Financial Crisis, the Fed started buying Treasury and mortgage bonds in a program that became known as “Quantitative Easing” or “QE.” In subsequent years, QE became a tool the Fed used with some regularity to add extra stimulus to the economy when the Fed could no longer cut interest rates.

In addition, the Fed shifted its approach to bank regulation around this same time. Prior to 2008, banks tried to keep as little cash on deposit at the Fed as they could, limiting this to only what the law required. After 2008, the Fed began encouraging banks to keep extra reserves, over and above what is required. This approach is called the “ample reserves” system.

The theory is that this makes banks safer. It is much harder for a bank to simply run out of money because customers choose to withdraw a surprising amount. Think of it as requiring banks to not just have a minimum deposit, but also a rainy day fund.

The problem with this system is that as banks make more and more loans, they need more and more reserves. Naturally, as the economy grows, so will the total amount of bank lending, so over time the total amount of reserves needed will always be growing. Reserves can only be created by the Fed. Today this is done by the Fed buying Treasury bonds or bills from a bank and crediting the bank with money that the Fed “created” out of thin air. It is this stock of Treasury bonds that people mean when they refer to the Fed’s “balance sheet.” 

Note that this isn’t a new process. The Fed has more or less always acted this way. In the pre-2008 world, the Fed’s balance sheet also consistently grew. The difference is that once the ample reserves regime was adopted, the pace of growth became much more rapid. Today the Fed holds about $6.6 trillion in bonds as part of this reserve creation process.

Warsh wants to shrink the balance sheet

Warsh has several criticisms of the balance sheet. One is that forcing banks to hold extra reserves prevents them from lending as aggressively as they would otherwise. It is possible that if these bank rules were eased, there would be more lending, which could bring down interest rates.

Warsh has also argued that the large balance sheet contributes to inflation. This is not a view most economists agree with, as there hasn’t been much correlation between periods of large-scale QE and inflation. However, it is possible that QE has an indirect impact on inflation. If Treasury purchases lower longer-term interest rates, it would also lower mortgage rates, which in turn could cause home prices to rise. Warsh argues that shrinking the balance sheet would have a disinflationary effect, which would create room for the Fed to cut their main interest rate target further.

Lastly Warsh argues that the large balance sheet encouraged Congress to run up larger deficits. There could be something to this: if interest rates were higher maybe Congress would have been more hesitant to keep spending. But this is a bit of an odd argument for Warsh to be making now. He claims he wants to bring interest rates down, not up. 

Regardless, it seems clear that Warsh will try to reign in the Fed’s balance sheet. Exactly how this is accomplished is a tricky question. As we said above, the balance sheet is really a function of the Fed’s bank regulatory regime. Changing that may have merits, but it would be a major undertaking. It also carries risks. In recent years there have been a few times when the Fed’s balance sheet got too small to accommodate all of the system's needs, causing significant market volatility. There is some thought that reserves are already close to the minimum level for “ample” reserves. If Warsh tries to reduce reserves further, it could be cause for market consternation.

Can Warsh convince the Committee to follow him?

Perhaps the most important question is whether Warsh can get the Fed’s committee to follow him. Historically, the Chair has dominated the Fed’s decision making, but there is nothing in the law that requires this. The Chair actually has almost no legal power over the whole of the Fed’s committee, which is made up of 12 voters. Hence, the Chair’s power really stems from their ability to convince the rest of the committee to follow along.

Working in Warsh’s favor is that he is known as a people person. As I said above, he earned a lot of praise during the Financial Crisis for his communication skills. When he was nominated for Fed Chair, he got praise from people as disparate as Jason Furman (former economics advisor to Barack Obama) and Mark Carney (Canadian Prime Minister from the Liberal Party). I think this shows Warsh’s ability to make relationships with various kinds of people.

Likely working against him are three big factors. One is that most of the committee really believes in Fed independence and wants to defend that. If Warsh is seen as favoring rate cuts simply to please the President, other Fed officials will probably be reluctant to follow. Warsh will have to make a cogent argument for rate cuts that is independent of Trump’s desires. Already some Fed officials have publicly said they don’t support more rate cuts at this time.

Second is that Warsh isn’t an economist. That’s not a problem in and of itself: Powell isn’t an economist either. However, most of the Fed Committee are traditionally trained economists. To convince them that rate cuts are appropriate, Warsh will need to speak their language. Many of the arguments Warsh has made in public about interest rates, the Fed’s balance sheet, etc., were made from more of a partisan perspective. That’s fine when you are an outsider, but once he becomes Chair, he’ll have to make the case in terms that will convince professional economists.

Third is that the Fed is a slow-moving, risk-adverse organization. Warsh is talking about some huge changes, and seems to want to make these changes quickly. That’s not how the Fed operates, especially outside of crises. This could add to the Committee’s discomfort with some of Warsh’s ideas.

How independent will Warsh be?

This is a question we can’t really answer until we see Warsh in action. I think it is fair to say that if Warsh doesn’t deliver on multiple rate cuts in 2026, President Trump will probably not hesitate to voice his displeasure. On the other hand, Warsh is smart enough to know that he’ll need to prove his independence if he wants to lead the Fed’s Committee effectively.

We may not get a true test of Warsh’s independence right away. Assuming Warsh is confirmed by the Senate in a timely manner, he won’t become Chair until May. We’ll know a lot more about the state of the economy by then. Right now there are signs that tariff effects on inflation are waning. If so, that trend should be even more evident in May. A clear downward trend on inflation would ease a lot of concerns among Fed officials.

Meanwhile job gains are hovering near zero. That alone would typically be enough to convince the Fed’s committee to cut rates. Certainly if the jobs picture gets worse, there is a good chance the Committee will be more than willing to cut aggressively in the second half of the year.

If the economy accelerates in the second half, or inflation remains stubbornly high, I would be surprised if Warsh can get the votes for more than 1-2 rate cuts. 

In other words, I think the actual number of rate cuts the Fed delivers in 2026 will be pretty similar to what might have happened had Powell remained Chair. The data will wind up dictating their actions. Perhaps Warsh is able to get the Fed to lean more toward cuts, but that’s about it.

In terms of the Fed’s balance sheet, Warsh isn’t the only one on the board who is sympathetic to the idea that a smaller footprint might be better. However, shifting away from the ample reserves framework will take time. The most I can imagine Warsh getting in 2026 is a study on how the Fed might go about shifting the balance sheet strategy.

How will Warsh impact my money?

The day Trump announced that Warsh would be the nominee, stocks fell modestly, bond yields rose slightly, and the dollar strengthened. All of these moves suggested Wall Street was mildly disappointed in the pick. However the moves were all small enough to suggest that investors did not see Warsh as some kind of major departure from the Powell Fed, at least in terms of interest rates.

If anything, the market’s move tells us that Wall Street suspects that deep down, Warsh is still the “hawk” that he seemed to be for most of his career. This is why the biggest move was in the dollar, which tends to strengthen as interest rates rise. It might be that longer-term, Warsh is someone who leans toward higher rates and less Fed management of markets.

More short-term, as I said above, I don’t expect Warsh to be a game changer. I think he understands that he has a delicate balance between keeping Trump at bay while also proving his independence to his Fed colleagues. Pushing for some of his more radical ideas right off the bat is probably not the way to strike that balance.