Kevin Warsh, a former Fed ‘hawk’ now in tune with Trump

Kevin Warsh has aligned his views with Trump on interest rates. Photo by KEVORK DJANSEZIAN /GETTY IMAGES NORTH AMERICA/AFP/File

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Kevin Warsh, a former U.S. Federal Reserve official tipped to be named its chief by U.S. President Donald Trump on Friday, was long an inflation foe but has aligned his views with those of Trump officials seeking aggressive interest rate cuts.

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Trump said he would announce his pick after the Fed held its benchmark rate steady this week under Chairman Jerome Powell, whom the president again slammed as a “moron.”

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The months of personal attacks have fuelled widespread fears among investors that the Fed’s policy independence is under threat, potentially posing an inflation risk to the world’s biggest economy.

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According to U.S. media reports, Warsh has edged out three other contenders for the Fed job: Fed Governor Christopher Waller, Rick Rieder of the investment behemoth BlackRock, and Trump’s top economic adviser Kevin Hassett.

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A Fed governor between 2006 and 2011, Warsh was previously a mergers and acquisitions banker at Morgan Stanley.

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He later joined former president George W. Bush’s administration, serving as a White House economic policy adviser from 2002 to 2006 before being nominated to the Fed’s Board of Governors.

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During his first term, Trump had considered Warsh for the Fed chair position, but eventually chose Powell instead.

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But Powell’s fall from grace was capped this month when U.S. prosecutors issued subpoenas against him threatening a criminal indictment, an unprecedented move widely seen as an escalation of Trump’s campaign against the central bank.

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No longer a ‘hawk’

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Warsh’s term as a Fed governor saw him work closely with its chief Ben Bernanke on the central bank’s policy responses during the financial crisis that rocked the global economy in 2008.

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He emerged as a key communications conduit between policymakers and financial markets, even as he became increasingly skeptical of some of the Fed’s actions — including interest rate cuts to help contain the damage.

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He resigned as a Fed governor in 2011, several years before his term was to expire in 2018.

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At the time, he was seen as an inflation “hawk,” a term describing policymakers more inclined to prioritize stable prices and low inflation.

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This is usually done by favoring tighter monetary policy and higher interest rates.

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But recently Warsh has stepped up his criticism of the Fed, endorsing many of the policy positions of Trump and his administration.

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He argued in a speech last year that the Fed had strayed from its monetary policy mission into political areas where it lacked expertise.

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Warsh also claimed that poor policy choices by the Fed were holding back the U.S. economy from growing further.