Former Fed governor’s return raised fresh questions over central bank independence
President Donald Trump on Wednesday formally sent Kevin Warsh’s nomination to chair the Federal Reserve to the Senate. The move came more than a month after Trump first named Warsh as his preferred pick to replace Jerome Powell. If confirmed, Warsh would serve a four‑year term as chair and a 14‑year term on the Fed board.
A former mergers and acquisitions banker at Morgan Stanley and economic aide in the George W. Bush White House, Warsh served on the Fed’s Board of Governors from 2006 to 2011, becoming its youngest-ever governor at 35.
During the 2008 crisis he worked on the government’s rescue of AIG and JPMorgan’s acquisition of Bear Stearns, then later joined Stanford’s Hoover Institution and became a partner at Duquesne Family Office, the investment firm founded by Stanley Druckenmiller.
Long-time Fed skeptic, evolving rate views
Warsh built his reputation as an inflation hawk. He criticized the Fed’s rapid rate cuts during the financial crisis, arguing they risked stoking future price pressures, and was the lone Fed official to oppose a 2011 plan to buy $600 billion in Treasuries.
He later argued that “the Fed’s current wounds are largely self‑inflicted” and called for “regime change in the conduct of policy” and a new accord with the Treasury.
More recently, Warsh aligned himself with Trump’s push for looser policy. He told CNBC that the Fed’s framework was “broken for quite a long time” and said Trump was “right to be frustrated” with Powell’s reluctance to cut rates more quickly.
In public remarks this year, he argued productivity gains from artificial intelligence would allow the economy to grow faster “without spurring inflation,” a view many current Fed officials do not share.
Confirmation path clouded by Powell probe
Warsh’s path to the chair is immediately complicated by a criminal investigation into Powell’s handling of a $2.5 billion renovation of the Fed’s Washington headquarters and his related Senate testimony.
Powell said in January that “the threat of criminal charges” against him was directly tied to his refusal, and that of other governors, to bow to Trump’s demands for faster rate cuts.
Senator Thom Tillis of North Carolina, a Republican on the Senate Banking Committee, said Warsh was “a qualified nominee with a deep understanding of monetary policy” but vowed to block any Fed nominee “until the investigation and potential indictment of Chair Powell is completed.”
The Powell probe followed Trump’s attempt last summer to fire Fed governor Lisa Cook after a housing official he appointed accused her of mortgage fraud, an allegation Cook denied. She remained on the board pending the outcome of a lawsuit challenging her removal, which the Supreme Court heard in January.
Senator Elizabeth Warren responded to Warsh’s nomination by writing that he “cared more about helping Wall Street after the 2008 crash than millions of unemployed Americans” and that no Republican “purporting to care about Fed independence” should advance the nomination while Trump pursued “witch hunts” against Powell and Cook.
Will mortgage rates drop?
“I don't want to say it's a total surprise… he was considered a hawk, but recently he seems to have aligned himself with Trump,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Mortgage Professional America, adding that it was “difficult to assess how the market is going to accept this nomination.”
Jonathan Hornik, a founding member and owner of the National Private Lenders Association (NPLA), told MPA that the new Fed chair would likely have to balance Trump’s desire for lower rates with the possibility of increased inflation.
“You're going to have a new Fed chair who is going to be aligned with the President's philosophy, lower rates, lower rates, lower rates,” Hornik said. “So that's going to happen. And then you're going to see how the economy, how the public responds to the stickiness of inflation, and how it remains higher.”
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