Top economists say Kevin Warsh is a great choice for Fed Chair — but his litmus test is yet to come

President Donald Trump's pick for Federal Reserve chair, Kevin Warsh, has both the credentials and the reputation that experts care about. However, top economist at Moody's Analytics, Mark Zandi, believes Warsh's real litmus test would be to keep politics out of interest rate decisions. Taking to X, Zandi expressed that given Warsh's experience of working with the Fed during the Global Financial Crisis, he is a reasonable choice, but the critical question persists.

"He [Warsh] knows the institution and everyone in global central banking circles. But the critical question is whether he will be strong enough to ensure that interest rates are set based on the economy, and not politics," Zandi wrote in an X post on Sunday. The economist added that it won't be easy for Zandi as President Trump has been pressuring the Fed to lower interest rates, in a bid to assert his influence on monetary policy. "Warsh's ostensible views on the use of the Fed's balance sheet or its data dependency are quirky, even odd, but his legacy as Fed chair will be determined by how much of the Fed's independence he can preserve," Zandi added.

Warsh, who spent his early career working at Morgan Stanley, was appointed as an economic advisor to President George W. Bush in 2002. He then became one of the youngest members to ever serve on the Fed's board during the critical period of 2006 to 2011 and ultimately through the global financial crisis. He worked with the central bank to stabilize the economy, and as per CNN, he emerged as a critic of the Fed's policies after his stint. Currently, Warsh serves as a distinguished visiting fellow at Stanford University. Zandi also referenced Warsh's credentials, saying, "he is well-versed in financial markets, which is especially important when markets go off the rails, which they will almost surely do some time during his four-year term."

In the months leading up to his nomination, Warsh advocated for lower rates, arguing that the current surge in productivity and artificial intelligence is setting the economy up for growth without causing inflation problems. However, many on Wall Street view Warsh as an inflation hawk, as he strongly focused on keeping prices at an acceptable level, even during the financial crisis. CNN noted that Warsh is considered the most frugal on inflation among the final candidates who emerged as candidates for the post. “The question is: Which Warsh do we get?” Ed Mills, a Washington policy analyst at Raymond James, told CNN. “The Warsh, who was an inflation hawk at the Fed? Or the one who interviewed for this job?”

Michael Feroli, chief US economist at JPMorgan Chase, told clients on Friday that he believes Warsh will make his case for rate cuts at least during his first year on the job, but his stance may change. “We’d also suspect that as time goes on, his leanings will be more open to revision and perhaps revert back to a more hawkish view,” Feroli wrote in a report, per CNN. He added that the turn may come after the midterm elections, into the last leg of the administration. 

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