What would Kevin Warsh do as Fed chair? | The Economist

Kevin Warsh. has been nominated. by President Trump as. the new chairman. of the Fed [Federal Reserve]. Now he is someone who has. good hair and good looks and is, as President Trump. called him, from “central casting”. He was governor. of the Federal Reserve. throughout the financial crisis, he’s extremely well-respected. Wall Street man. Beyond that. give us a. quick summary of. “Warshonomics”. What is it about? What Kevin Warsh wants to do. is get interest rates down. He's more or less said.

to Trump to get the job. that he will do this. And the justifications. he's come up with for that. are that, one, the AI boom. is going to lead. to a productivity surge. and that will allow the Fed. to keep interest rates down. because productivity. is disinflationary. It's good to have lots of stuff. And the second part of that. is that he thinks you can shrink. the Fed's balance sheet, which is another part. of monetary policy, and that's contractionary. and to offset that. you can cut interest rates, a bit like pressing the brake. and the accelerator on the car.

at the same time. So, those are the two planks. of “Warshonomics”. that he thinks will allow him. to give the president. what he wants, which is lower interest rates. You've known him now. for, I don't know, 15 years, something like that? I don't know him well. but I met him. when I had Henry's job, some 15 years ago. But I have always thought of him. as a conservative economist, someone who's extremely hawkish. In fact, he was hawkish. when it was unfashionable. to be hawkish, when there probably wasn't. much of a reason to be hawkish. But I'm struck. by how deftly he's able to say. exactly what President Trump.

would want to hear. Archie, you've actually been. doing some interesting work. this week. You've built an LLM, right? Which characterises. the hawkishness and. dovishness of. “Warsh speak”. Do you want to talk us through. what you found? The question. everyone's been playing with is. just how political is Kevin Warsh? How much is he. a classic technocrat? As he, at times, is. And how much is he. a really political actor? And this chart. I think gets across something. pretty striking,

which is. Kevin Warsh is a hawk. So higher values on this chart. mean more hawkishness, so more anxiety about inflation, more desire. to pull up interest rates. And for pretty much. all of his career. he's really been a hawkish figure. And there are a few exceptions. He was not a hawk in the depths. of the financial crisis. He was not a hawk. in the depths of covid. But really that's the pattern. So, you see Donald Trump. coming in, that line right at the end, and then this crash. as Kevin Warsh suddenly. reinvents himself. as this rate-cutting, easy-monetary-policy, dovish figure.

who will deliver the things. that Donald Trump says. he wants—. much lower interest rates. And we'll now see if he does.