It's really interesting to look back and see that the concerns we had about Powell didn't pan out as expected. Perhaps having a lawyer in the spot in times like these isn't such a bad idea. Powell's understanding of precedent has made him a solid chair.
Let's start with the basic premise that Warsh agreed to make every effort to lower interest rates. Trump's public statements to that effect, that he wouldn't nominate someone with a differing point-of-view, make that obvious.
The sidenote of Warsh's Father-in-Law, Robert Lauder (of Estee Lauder fame) being not only a large financial backer of the current President but also the main proponent for annexing Greenland, creates another point of consideration.
Warsh gave an interview during the Pandemic (Hoover Institute, April 2, 2020) where he talked about monetary policy needing to be dovish during "peace" and hawkish during times of conflict. That's where our current political policies create the conflict. We're not in a shooting war but an economic one.
How he navigates the inflation that may result from all of the announced Direct Foreign Investment, a consumption cycle vastly different from 2008-09, and labor offsets as AI shifts job functions.
*All of this changes should the Democrats assume legislative control after November 2026 elections. They would reassert themselves via oversight and Constitutional authority making several current policy positions moot.
I also trust Sahm’s impressions. Warsh is hawkish during Dem administrations and turned suddenly dovish when Trump was elected. Suspect he and his father in law were lobbying for this position from the start. I fear he is just a political animal and not bright enough to do much besides Trump/Bessents bidding
Claudia is making a Fiscal Dominance vs. Financial Repression argument, of which she is compeltely correct.
Warsh wants Congress/Presidential spending priorities relative to debt issuance. We know Warsh doesn't understand labor economics, but to also have little concern for price stability is concerning.
My opinion of the Fed chair has always been that no one wants to be connected with Arthur Burns (or William Miller). No matter what your politics, when you come into the job, if you let inflation run wild, you know history will mark you as a failure. Fed chairs do think about their legacy - they are almost all egotistical in the extreme.
In the current case, Warsh clearly wanted this job. You can't lead off the interview by saying "Mr. President, inflation is running higher than we want it to, so I'm not cutting rates". You won't get to question two. But if the chair, and the other voting members of the FOMC think inflation is lurking, it would take a cataclysmic event to round up enough votes to lower rates. At the end of the day, inflation is the bogey man that all Fed chairs (and FOMC members) fear... not a president.
Claudia Sahm in the piece Abdullah provided (thank you) quoted Warsh in 2010 as follows:
"… the mood in upstate New York can be summed up in two words, and I think this probably applies more broadly: “hunker down.” In other words, most businesspeople are waiting for others to move first. I take this as evidence that even a modest amount of additional stimulus could have outsized effects over the longer run by changing the dynamic from the current stasis to one in which additional demand growth led to employment gains that improve confidence."
The current situation in the US seems to me to be nominally similar -- uncertainty -- but the solution specified by Warsh at that time -- stimulus -- would not be likely to provide relief, because in this case the uncertainty is primarily caused by erratic policies by ONE MAN -- Donald J. Trump -- and that erratic behavior is embedded in his operating style. That, combined with a significant absence of willingness to listen to advice, which Mr Trump (rightly) blames for his inability to achieve policy goals in his first administration, means the uncertainty is likely to continue, and so businesses will continue to be reluctant to invest. Some companies may be possible to bully into investing -- note Mr Trump's reaction to Exxon saying Venezuela is "uninvestable", and other oil companies immediately saying they would invest -- but my personal thinking is that Mr Trump will largely rely on his bullying of other countries to invest in the US through trade "negotiations". Foreign countries and private partners have pledged an estimated $5 trillion to $9.6 trillion in total investments following tariff negotiations. Trump himself has cited figures as high as $17 trillion to $18 trillion, although this is as always highly questionable. And some of these investments may be over up to ten years. Still it is a huge sum, and even the smallest figure would offset a lot of uncertainty among investors in the US.
It will be interesting to see the Supreme Court's decision on Mr Trump's tariff powers, expected early 2026.
It's really interesting to look back and see that the concerns we had about Powell didn't pan out as expected. Perhaps having a lawyer in the spot in times like these isn't such a bad idea. Powell's understanding of precedent has made him a solid chair.
He’s done better than I thought and earned my respect even more with his recent actions to protect the Fed.
Let's start with the basic premise that Warsh agreed to make every effort to lower interest rates. Trump's public statements to that effect, that he wouldn't nominate someone with a differing point-of-view, make that obvious.
The sidenote of Warsh's Father-in-Law, Robert Lauder (of Estee Lauder fame) being not only a large financial backer of the current President but also the main proponent for annexing Greenland, creates another point of consideration.
Warsh gave an interview during the Pandemic (Hoover Institute, April 2, 2020) where he talked about monetary policy needing to be dovish during "peace" and hawkish during times of conflict. That's where our current political policies create the conflict. We're not in a shooting war but an economic one.
How he navigates the inflation that may result from all of the announced Direct Foreign Investment, a consumption cycle vastly different from 2008-09, and labor offsets as AI shifts job functions.
*All of this changes should the Democrats assume legislative control after November 2026 elections. They would reassert themselves via oversight and Constitutional authority making several current policy positions moot.
Thanks Lary. I had no idea about these other connections. Appreciate the input
I also trust Sahm’s impressions. Warsh is hawkish during Dem administrations and turned suddenly dovish when Trump was elected. Suspect he and his father in law were lobbying for this position from the start. I fear he is just a political animal and not bright enough to do much besides Trump/Bessents bidding
Claudia is making a Fiscal Dominance vs. Financial Repression argument, of which she is compeltely correct.
Warsh wants Congress/Presidential spending priorities relative to debt issuance. We know Warsh doesn't understand labor economics, but to also have little concern for price stability is concerning.
Inside Economics did a great podcast about Warsh. https://www.moodys.com/web/en/us/insights/podcasts/inside-economics/wurm-on-warsh.html
My opinion of the Fed chair has always been that no one wants to be connected with Arthur Burns (or William Miller). No matter what your politics, when you come into the job, if you let inflation run wild, you know history will mark you as a failure. Fed chairs do think about their legacy - they are almost all egotistical in the extreme.
In the current case, Warsh clearly wanted this job. You can't lead off the interview by saying "Mr. President, inflation is running higher than we want it to, so I'm not cutting rates". You won't get to question two. But if the chair, and the other voting members of the FOMC think inflation is lurking, it would take a cataclysmic event to round up enough votes to lower rates. At the end of the day, inflation is the bogey man that all Fed chairs (and FOMC members) fear... not a president.
Claudia Sahm in the piece Abdullah provided (thank you) quoted Warsh in 2010 as follows:
"… the mood in upstate New York can be summed up in two words, and I think this probably applies more broadly: “hunker down.” In other words, most businesspeople are waiting for others to move first. I take this as evidence that even a modest amount of additional stimulus could have outsized effects over the longer run by changing the dynamic from the current stasis to one in which additional demand growth led to employment gains that improve confidence."
The current situation in the US seems to me to be nominally similar -- uncertainty -- but the solution specified by Warsh at that time -- stimulus -- would not be likely to provide relief, because in this case the uncertainty is primarily caused by erratic policies by ONE MAN -- Donald J. Trump -- and that erratic behavior is embedded in his operating style. That, combined with a significant absence of willingness to listen to advice, which Mr Trump (rightly) blames for his inability to achieve policy goals in his first administration, means the uncertainty is likely to continue, and so businesses will continue to be reluctant to invest. Some companies may be possible to bully into investing -- note Mr Trump's reaction to Exxon saying Venezuela is "uninvestable", and other oil companies immediately saying they would invest -- but my personal thinking is that Mr Trump will largely rely on his bullying of other countries to invest in the US through trade "negotiations". Foreign countries and private partners have pledged an estimated $5 trillion to $9.6 trillion in total investments following tariff negotiations. Trump himself has cited figures as high as $17 trillion to $18 trillion, although this is as always highly questionable. And some of these investments may be over up to ten years. Still it is a huge sum, and even the smallest figure would offset a lot of uncertainty among investors in the US.
It will be interesting to see the Supreme Court's decision on Mr Trump's tariff powers, expected early 2026.