By Nick Timiraos
Wall Street and Washington will be watching Kevin Warsh on Tuesday for any sign he has an understanding with President Trump to cut interest rates if installed as chair of the Federal Reserve. Trump will be watching for any sign he doesn't.
The high-wire act starts before Warsh even has the job. Warsh secured the nomination by convincing Trump he shares the president's view that the Fed should be cutting rates. At his Senate confirmation hearing Tuesday, he can reaffirm that case -- at a moment when the Iran war has turned economic conditions against it -- or begin, carefully, to distance himself from it.
Air cover from Treasury Secretary Scott Bessent, who last week said he understood why the war had made the Fed hesitant to cut, might have helped Warsh. But Trump publicly overruled Bessent one day later, saying he didn't agree.
Warsh has said almost nothing in public about monetary policy in five months -- since before he was selected for the job. He broke the silence Monday, saying in prepared remarks for his confirmation hearing that the Fed's independence isn't threatened when elected officials "state their views on interest rates."
But he also warned that continued inflation would raise public doubts about whether monetary-policy independence is worth preserving.
"The world has changed since the president and Kevin -- and any other Fed candidate -- may have talked," said Glenn Hubbard, the Republican economist who served with Warsh under former President George W. Bush. Bringing colleagues along is Warsh's job, he said, "and it's hard to believe that consensus would be around an immediate rate cut, just given the state of the world."
Jerome Powell, the outgoing chair, approached Trump's pressure for lower rates through a posture of stoic non-engagement. The circumstances were also different when Trump picked Powell eight years ago. In the run-up to Powell's confirmation, there was no publicly stated expectation by Trump that Powell was going to deliver a particular course of monetary policy.
By contrast, Warsh's path to the job ran through a series of conversations in which Trump indicated that whomever he chose would deliver what Powell hadn't. And Warsh didn't just inherit the expectations Trump now holds; he helped set them.
On Fox Business in October, Warsh cast the Fed as the wet blanket on an administration trying to deliver a "golden age." "It is very dangerous when two parts of our government are working at cross-purposes, and it's got to change," he said.
Warsh has laid out an ambitious agenda for his chairmanship. He says the Fed talks too much about the near-term path of rates and leans too heavily on backward-looking data. He also says it plays too large a role in overnight lending markets after expanding its footprint during the 2008-09 financial crisis.
Whether this will matter to the White House if rates aren't coming down is another matter. Asked last week on Fox Business whether interest rates would still fall this year, Trump responded, "When Kevin gets in, I do."
One week before he announced Warsh as his pick, Trump described candidates for the job as people who tend to "say everything I want to hear" in interviews and then change their views. "It's amazing how people change once they have the job," he said. "It's too bad, sort of disloyalty, but they got to do what they think is right."
How Warsh manages any gap between what Trump expects and what he can deliver is the tougher test because Trump has often reserved his sharpest attacks for people who don't do what he expected.
Investors are watching closely because Warsh's views on monetary policy have moved in opposite ways over the past two years. In 2024 and early last year, Warsh was critical of the Fed for being too comfortable accepting 3% inflation -- implying that the Fed shouldn't be lowering rates. But last summer, he said the Fed was too worried about inflation even though it had shown little improvement.
"That absence of detail of what his views are is probably the most important thing for investors. They're just looking for a rationale for the change in views," said Brian Gardner, Washington policy strategist at Stifel. "What is his thought process? How did he get from A to B to C?"
People who have worked with Warsh say his conviction about the role of a central bank and an eye on his historical legacy would pull him toward independence and not the president. The Fed chair who bent to a president's demands for easy money, Arthur Burns in the early 1970s under former President Richard Nixon, is remembered for nourishing a decade of inflation.
The more immediate question is whether Warsh can survive his first months in office without the tirades and confrontation Powell endured for years.
Working relationships between presidents and Fed chairs aren't uncommon, said Ellen Meade, a former Fed economist now at Duke University, and Warsh has maintained a stronger social relationship with Trump than Powell ever had. "Warsh might be well placed to try to thread that a little bit," she said.
Others have been critical of Powell's approach. They say his habit of invoking the institution's independence and stance of non-engagement made some collisions with Trump worse than they had to be. A chair who visited the White House, flattered the president, and gave him a sense of being heard, they say, could buy room that Powell never had without necessarily compromising on policy.
The approach has skeptics. "The job of the Fed chair isn't to be a Trump whisperer or any president whisperer," said Hubbard, the Republican economist. The Fed has legal protections to preserve a central bank that is both independent and seen that way, he said, which should reduce any need to cultivate a relationship with the president.
Said Meade: "I think Warsh thinks he might be able to manage it with his interpersonal skills, his vast network in the financial markets and his relationship with Bessent. But I don't think he's going to hand over the institution."
Interest-rate decisions aren't made by the chair alone but by a committee of 12 policymakers. "It looks like the chair always gets what they want, but that's because the chair maneuvers to stay in the middle of the committee," said former St. Louis Fed President James Bullard. The middle Warsh inherits has moved away from where Trump wants it in part because of inflation hazards kicked up by the Iran war.
That leaves Warsh with two paths if the president presses him for cuts he can't deliver: absorb the public attacks Powell endured, or redirect them at his own committee.
Meade sees a third. Warsh is a longstanding inflation hawk, and his job now is to "make the case to the president that it's very important to bring inflation back down," she said. "I don't see him walking away from this hawkish-monetarist perspective he's espoused for years so quickly, even if that means incurring the wrath of the president."
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