Warsh: Identity crisis?

If confirmed as chair of the Federal Reserve, Kevin Warsh would immediately face a credibility test. Is he an inflation hawk with the backbone to defend monetary independence, or merely another technocrat willing to become just the expansionary dove Donald Trump has been searching for? His ideological history may point towards the former of the two, but the political circumstances under which he has been selected raise serious doubts.

Warsh has long presented himself as a “hard money” central banker. In a 2010 speech to the Shadow Open Market Committee (delivered while the US economy was still recovering from the Global Financial Crisis) he warned that the Fed was already risking its credibility. He insisted that central bank independence should be confined only to monetary policy, cautioning against the Fed becoming a rescuer of irresponsible firms and a provider of moral hazard. He even went as far as speaking against executive wing politics potentially influencing the Fed's actions, arguing that there was a danger that such activity could pressure the Fed to keep policy loose to finance rising debts.

That intellectual framework still defines Warsh’s rhetoric today. In an IMF lecture in April 2025, he accused the Fed of institutional drift into marginal areas, failure on price stability, and standing complicit in the face of ballooning federal spending. He sharply criticised its role as the dominant buyer of US Treasury debt since 2008. Warsh's primary expressed fear here is clearly a situation in which the Fed effectively enables fiscal excess.

This argument is exactly what makes Trump's decision to pick Warsh so unsettling. Trump embodies fiscal recklessness, known for routinely attacking J. Powell for refusing to cut rates fast enough and showing careless contempt for central bank independence. Trump's appointment of Warsh suggests not conversion, but convenience. Warsh’s hostility to the Fed’s "woke" agenda and his orthodox reputation make him politically useful. Even more troublingly, Warsh has recently argued that inflation is no longer a major threat, citing AI-driven productivity growth, a convenient conclusion for an administration addicted to cheap money and massive deficits.

This shift is hard to reconcile with Warsh’s earlier calls to arms and appears less like rigorous analysis than adopted optimism. Abandoning the Fed's historic data-dependence in favour of such a wager, amid rapid growth as seen on the capital markets and accelerating borrowing would be reckless to an extent not seen in years.

However not all hope is lost as institutionally the Fed may constrain him, given that no chair governs independently. But the central risk remains that Warsh would rationalise Trump’s demands, accepting fiscal dominance over monetary independence in practice while dressing it up in technical language. Furthermore, his apparent preference for lower short-term rates combined with aggressive balance-sheet shrinkage risks financial fragility, a weaker dollar, and renewed inflation fears.

The US does not need a clever apologist for presidential pressure. It needs a Fed chair willing to say no. Powell has done so. Whether Warsh can do the same under Trump is deeply doubtful.