Kevin Warsh isn't who investors think he is - how you can profit from their mistake

MW Kevin Warsh isn't who investors think he is - how you can profit from their mistake

By Charlie Garcia

Trump's nominee for Fed chair has been hawkish about easy money. But this president demands lower rates.

Kevin Warsh (L), President Donald Trump's nominee to lead the Federal Reserve, would bring changes to the U.S. central bank - and to your bank account.

Warsh's hawkish credentials are real. His hawkish future is not.

President Donald Trump just nominated Kevin Warsh to chair the Federal Reserve. Warsh has spent years criticizing easy money, bloated balance sheets and inflation as "a choice." He resigned from the Fed in 2011 over QE2. He called the $7.5 trillion balance sheet "a relic of crisis-era thinking."

Now he would be working for a president who wants rate cuts, market booms - and no pushback.

Guess which Kevin Warsh shows up.

Warsh's hawkish credentials are real. His hawkish future is not. Trump didn't pick him to raise rates and crash markets before the midterms. He picked him to sound responsible while doing what he's told. The discipline talk is marketing. The accommodation is the product.

If you're repositioning your portfolio for a return to sound money, you're banking on a fantasy.

Read: Why Trump would actually welcome higher inflation - and the new Fed chair could make it happen

The resume says hawk. The boss says otherwise.

Keeping Trump happy means easy money dressed up in hawkish vocabulary.

Warsh's biography screams monetary rectitude. Morgan Stanley banker. Stanford Law. Fed governor from 2006 to 2011. He helped design TARP during the financial crisis, then quit when he thought QE2 went too far.

Quitting on principle in Washington is like spotting a unicorn. It happens. Rarely.

For the past 14 years at the Hoover Institution and financier Stanley Druckenmiller's family office, Warsh built an intellectual case against everything the Powell Fed did. "Inflation is a choice," he said last July. The Fed's balance sheet should be "significantly" shrunk. Markets need discipline, not central bank crutches.

This is all true. It's also irrelevant.

Warsh didn't spend years positioning himself for this job to torch it on principle. He already did that once in 2011. Warsh wants to keep Trump happy. And keeping Trump happy means easy money dressed up in hawkish vocabulary.

From June 2025: Trump's pick to replace Fed Chair Powell could rock your mortgage and retirement. Buckle up.

Warsh over Hassett: The political chessboard

Jerome Powell's term ends in May amid a Justice Department criminal probe that has nothing to do with crime and everything to do with interest rates. The Justice Department subpoenaed the Fed over Powell's testimony about a building renovation; Powell called it a "pretext." Trump said he knew nothing about it but added that Powell is "not very good at the Fed, and he's not very good at building buildings."

This is the environment Warsh is walking into.

North Carolina Sen. Thom Tillis, a Republican on the Senate Banking Committee, announced he would oppose any Fed nominee until the Powell matter is resolved. With a slim GOP majority, he alone could block Warsh's confirmation.

So why Warsh over Kevin Hassett?

Hassett was the early favorite. But his problem was obvious: He is too close to Trump. Bond investors told Treasury Secretary Scott Bessent they worried Hassett would slash rates on command. JPMorgan Chase $(JPM)$ CEO Jamie Dimon signaled support for Warsh instead.

Hassett would have been the quiet part said out loud. Warsh is the quiet part with a Stanford pedigree.

Not that Warsh's reform agenda would survive contact with reality. Former New York Fed President Bill Dudley called his balance-sheet plan "a fairy tale." Inside the FOMC, doves such as Christopher Waller could dissent if Warsh pushes hikes. The votes for genuine hawkishness aren't there. Even if they were, Trump would make phone calls until they weren't.

Meanwhile, the U.S. economy hums at 3% growth. Unemployment is at 4.1%. Stocks are at records. Who crashes that party?

Not a chairman who spent years lobbying for the job.

What Warsh says vs. what he does

Here's the tell. Warsh has been talking up "AI-driven productivity gains" that could justify lower rates without inflation. In a Wall Street Journal piece, he suggested technological leaps might allow accommodative policy without overheating.

That's not hawkishness. That's the intellectual architecture for dovishness. He's building the excuse in advance.

Trump's tariffs have already added roughly half a percentage point to inflation in 2025, according to Goldman Sachs. The U.S. national debt sits at $36 trillion. Entitlement spending is on autopilot. None of this gets solved with sound money. It gets solved with inflation. Quietly. Over decades. While officials talk about "price stability" and "data dependence."

Warsh understands this. He's not stupid. He's also not going to fall on his sword twice.

So expect the rhetoric to stay tight. Expect the policy to stay loose. Expect the gap between words and actions to be where the money is made.

What this means for your portfolio

Trump wants markets up. Warsh will deliver. That's the job description, even if it's not in the Senate testimony.

1. Bonds still lose. It won't be because Warsh tightens, but because he won't. A 10-year Treasury BX:TMUBMUSD10Y yields roughly 4.2%. Real inflation, properly measured, runs closer to 7%. That's negative purchasing power. Warsh might slow the bleeding. He won't stop it. U.S. debt doesn't get repaid; it gets inflated away. Owning long-duration Treasurys is lending money to a debtor who plans to repay you in cheaper dollars. The math doesn't change because the Fed chair has a better resume.

2. Gold and silver win. Hawkish talk strengthens the dollar DXY short-term. But when tariffs bite and Trump demands relief, Warsh will accommodate. Real rates stay negative. Hard assets stay necessary. The price of gold (GC00) and silver (SI00) doesn't reflect what the Fed says. It reflects what the Fed does.

3. Bitcoin gets interesting. Warsh called bitcoin (BTCUSD) a "sustainable store of value, like gold." He also invested in crypto startups and wants to ease bank restrictions on digital assets. Regulatory clarity helps. But he won't let liquidity run wild, at least not obviously. Bitcoin becomes a bet on whether the theater of discipline matters more than the reality of debasement. I'd bet on reality.

4. Dividend growers outperform. If rates stay elevated in name but accommodative in practice, quality companies that raise dividends annually will beat speculative growth stories. Cash flow matters when the Fed is pretending to be responsible. Companies that can increase payouts regardless of policy give you a raise the Fed never will.

5. Risk assets rip - at least short-term. Trump wants markets up. Warsh will deliver. That's the job description, even if it's not in the Senate testimony.

Read: Here's what Trump's pick of Kevin Warsh to run the Fed means for the economy, markets and you

Watch what Warsh does, not what he says

Your portfolio shouldn't bet on a hawkish revolution. It should bet on continued debasement with improved public relations.

Former Fed Chair Paul Volcker talked tough and acted tougher. He broke inflation's back and accepted the recession that came with it. He was also 6 feet 7 inches, smoked cheap cigars and didn't care if you liked him.

Warsh is not Volcker. He's a Stanford-polished operator who wants the chair and wants to keep it. He'll quote Volcker in speeches. He'll cite "price stability" in testimony. He'll sound like the adult in the room.

Then he'll do what Trump wants.

The Fed hasn't been independent for years. It has been politically captured in slow motion - first by the need to finance deficits, then by the fear of market tantrums and now by direct presidential pressure. Warsh won't reverse this. He'll manage it. Elegantly. With better talking points than Powell.

Your portfolio shouldn't bet on a hawkish revolution. It should bet on continued debasement with improved public relations. That means less paper. More hard assets. Stocks that throw off cash. Commodities that governments can't print.

The tyranny of the status quo isn't ending. It's just getting a better speechwriter.

Charlie Garcia is founder and a managing partner of R360, a peer-to-peer organization for individuals and families with a net worth of $100 million or more. He holds positions in gold, silver and bitcoin. Follow him on X here.

Agree? Disagree? Share your comments with Charlie Garcia at charlie@R360Global.com. Your letter may be published anonymously in the weekly "Dear Charlie" reader mailbag.

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-Charlie Garcia

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January 31, 2026 14:54 ET (19:54 GMT)

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