Fed Chair Apprentice

Tuesday, April 21, is a day Kevin Warsh has long awaited: his Senate confirmation hearing for Fed Chair. He lost out on Trump’s nomination to Jay Powell eight years ago. This time, he won the nod and is on track to replace Powell next month. Or is he?

At his hearing, Warsh must maintain his support among Republican Senators, avoid rattling financial markets, and convince President Trump to pull the plug on the Department of Justice’s criminal investigation of Powell. Otherwise, Fed Chair could slip through Warsh’s fingers once again. There’s nothing normal about this season of Fed Chair Apprentice, and it is far from over.

Warsh’s opening statement, which Politico published the day before, is a useful lens into the hearing and some of the policy questions he could face. There will also be questions about Warsh’s undisclosed financial entanglements, why he was mentioned in the Jeffrey Epstein files, and his loyalty to President Trump. I will focus here on three policy themes: Fed independence, Warsh’s theory of inflation, and financial deregulation.

The threat to Fed independence.

President Trump has repeatedly demanded that the Fed cut interest rates, despite inflation exceeding the Fed’s 2% target. In August 2025, Trump fired Fed Governor Lisa Cook, though she remains in place with her case before the Supreme Court, and Trump has supported the Department of Justice’s criminal investigation of Fed Chair Powell, launched in January 2026. Trump’s pressure campaign and his litmus test for a new Fed Chair who favors lower rates have made Fed independence a key concern.

That’s not how Kevin Warsh sees it. In his opening statement, Warsh argues that Fed independence is “largely up to the Fed.” Moreover, Warsh argues that the President sharing his views on interest rates is not a problem (emphasis added):

So let me be clear: monetary policy independence is essential. Monetary policymakers must act in the nation’s interest . . . their decisions the product of analytic rigor, meaningful deliberation, and unclouded decision-making.

I do not believe the operational independence of monetary policy is particularly threatened when elected officials—presidents, senators, or members of the House—state their views on interest rates. Central bankers must be strong enough to listen to a diversity of views from all corners . . . humble enough to be open-minded to new ideas and new economic developments . . . wise enough to translate imperfect data into meaningful insight . . . and dedicated enough to make judgments faithfully and wisely.

Simply stated, Fed independence is largely up to the Fed.

But Warsh’s platitudes ignore the current reality. Trump’s pressure on the Fed is far beyond words. Central bankers who oppose Trump’s views on interest rates do not need to be “strong enough to listen”; they need to be personally wealthy enough to cover the legal fees of cases brought against them in retaliation.

Warsh will undoubtedly be asked about the investigation against Powell. It would be an opportunity to show loyalty to Trump and thus fast-track his nomination vote. Warsh could signal his intention, if confirmed, to open an internal ethics investigation into the Fed’s building renovation and specifically Powell’s role in it. The Fed’s Inspector General reports to the Chair, so he would have that authority. The only way for Powell to avoid an internal investigation would be to resign from the Fed. Shifting the investigation of Powell from the Department of Justice to the Fed itself may offer an off-ramp for DOJ while keeping pressure on Powell to leave. It is a move that would please the President, but could alienate members of the Federal Reserve.

Theory of inflation.

The tension between Warsh the Fed critic and Warsh the Trump pick is sharpest when Warsh talks about his theory of inflation:

Congress tasked the Fed with the mission to ensure price stability, without excuse or equivocation, argument or anguish. Inflation is a choice, and the Fed must take responsibility for it.

In the spirit of his former mentor, Milton Friedman, Warsh has criticized the Powell Fed for using supply shocks, such as the pandemic and Russia’s invasion of Ukraine, as an “excuse” for higher inflation. Warsh’s “inflation is a choice” echoes Friedman’s, “inflation is always and everywhere a monetary phenomenon." Inflation is about government spending and the Fed printing money. The Fed, through monetary policy, can achieve any inflation rate it wants.

Warsh tries to have it both ways. It is hard to blame the Powell Fed for allowing above-target inflation during the Biden Administration on a forecast that it would be transitory, and then argue that with inflation still close to 3% under the Trump Administration, the Fed should be lowering rates on a forecast of productivity-induced disinflation. If inflation is the Fed’s choice and forecasting is fraught, as Warsh often claims, shouldn’t it be raising rates now to lower inflation?

In a twist of fate, Warsh, as Chair, would face his own energy supply shock. To lay the groundwork for rate cuts under his leadership, Warsh should “look through” the higher inflation caused by the conflict in the Middle East. In fact, to argue for immediate rate cuts as President Trump wants, Warsh should even push back on the Fed’s current “wait and see” approach. Then what’s Warsh’s rationale for cuts? A positive supply shock—productivity growth from AI that he expects to be disinflationary. So, Warsh is a monetarist when criticizing the Powell Fed, but a believer in accommodating supply shocks when he’s in charge?

Fed in emergencies.

Warsh became a Fed Governor in 2006 and resigned in early 2011. His formative years as a central banker were spent responding to the Global Financial Crisis and its immediate aftermath:

During the great financial crisis—when shocks hit our economy, unemployment spiked, our economic system faced collapse, and America’s standing in the world was scrutinized—our central bank played an indispensable role. My colleagues and I leveraged the tools and powers that the Fed, and only the Fed, had to deploy. We benefited enormously from the credibility that our predecessors had built up and passed down to us.

… In the period after the crisis, I also witnessed an institution that was tempted to play a larger role in the economy and society . . . to extend its reach and stretch its hard-earned credibility, often with the best intentions, to the very edge of, if not beyond, the Fed’s statutory responsibilities.

Today Warsh is a proponent of financial market deregulation and rolling back some of the financial reforms in Dodd-Frank. This is from someone who witnessed the damage caused by financial crises firsthand. That experience doesn't appear to have affected his thinking on financial regulation. In calling for lower rates, Warsh tries to repurpose Greenspan’s insights on productivity, but in pushing deregulation, he ignores Greenspan’s blind spots prior to the Global Financial Crisis. Warsh has a lot to say about the size of the Fed’s balance sheet, but very little about why balance sheet expansion was necessary in the first place or how the Fed should avoid emergencies.

In closing.

There have been ten Chairs since the Banking Act of 1935 created the modern Fed structure. Transitions in leadership are a normal rhythm of the institution. A Fed Chair’s legacy is more than his or her policy views. Their leadership style is critical. In how he would lead, Warsh describes himself as “one-time insider and the questioning spirit of an outsider” and positions himself as someone who will reform the Fed.

Warsh accuses the Fed of being stuck in the past: “the tyranny of the status quo.” But he is the one resurrecting Milton Friedman’s monetarism of the 1970s and Alan Greenspan’s productivity studies of the 1990s. Neither fits the current moment well, and they don’t even fit together. Hopefully, in his hearing, Warsh will clarify his thinking and help us see how the pieces fit together.