Kevin Warsh, the former governor of the Federal Reserve, is a candidate to be the next Fed chair. He is pictured here with billionaire businessman Bom Kim at the 2023 Allen & Co. Sun Valley Conference in Idaho.
Just a few weeks ago, the contest to become the next chair of the Federal Reserve seemed to be virtually over, but it is now once again appearing to be a serious contest.
Early in December, Kevin Hassett, a senior economist in the Trump administration, was the obvious front-runner; however, in recent times, former Fed governor Kevin Warsh has resurfaced as a formidable challenger.
Forecast market On Tuesday morning, Kalshi rated Hassett’s chances at 40% and Warsh’s at 47%. Hassett was at 42% and Warsh was at 46% on Polymarket.
President Donald Trump told the Wall Street Journal on Friday that he was considering choosing between “the two Kevins” and that important Wall Street figure Jamie Dimon, CEO of JPMorgan Chase (JPM), had indicated his support for Warsh. These developments have caused a shakeup in the competition for the Fed position.
Concerns have also been raised by several Fed observers and economists regarding Hassett’s possible appointment, arguing that he has been too supportive of Trump’s ideas to serve as head of the U.S. central bank, which is renowned for its independence. People with the president’s ear have resisted Hassett’s candidacy, according to a CNBC report on Monday, because they fear the bond market may revolt if it perceives him as being in Trump’s pocket.
According to Stephen Myrow, managing partner of the research company Beacon Policy Advisors, Warsh is currently “clearly in play” as a Fed pick. However, Myrow stated that he believes Warsh’s chances are “being overblown” in comparison to Hassett’s prospects, who is more associated with Trump’s “inner circle.”
“I think there are people pushing for Warsh,” Myrow, a former Treasury Department employee under President George W. Bush, stated. nevertheless, “what you’re seeing is more wishful thinking from the outside or from Wall Street than you’re actually getting straight out of the Trump circle.”
In an email to BourseWatch, a former No. 2 official in Trump’s Treasury Department also voiced doubts about Warsh’s chances.
Michael Faulkender, who was Trump’s deputy Treasury secretary until August and is currently a professor at the University of Maryland’s business school, stated, “Even though the betting markets have Warsh rising so that it is now a roughly 50/50 split, I am still of the belief that Trump will go with the person he knows, and that is Hassett.”
In an interview with CNBC on Tuesday morning, Hassett himself downplayed some of the worries about him.
“The idea that someone isn’t qualified for the job because they are a close friend who’s worked well with the president is something that I think the president rejects,” Hassett stated.
Trump may not want the race for Fed chair to appear to be decided, which is another reason for Warsh’s recent ascent.
It’s possible that Trump didn’t like that it was being handled as if it were inevitable. Myrow of Beacon told MarketWatch, “I think part of the reason Warsh’s name comes back into that is because he likes to have attention paid to a bake-off.” Trump is playing “Fed Chair Apprentice,” refers to Trump’s prior role as host of the long-running reality-TV program “The Apprentice,” according to other experts who have previously made similar claims.
Kevin Warsh is who?
Warsh, a prominent critic of the U.S. central bank, had been the front-runner for the Fed position in the spring. He claimed in April that the Fed helps lawmakers get away with excessive spending, talks too much, and becomes overly involved in current social concerns.
See: The Fed is broken, according to Kevin Warsh. He’s aiming directly at Powell’s position.
From 2006 to 2011, Warsh, who is married to Jane Lauder, the millionaire heiress of Estée Lauder (EL), was a Fed governor. Warsh has worked as a visiting fellow at Stanford University’s Hoover Institution, a conservative think tank, and as a lecturer at the university’s business school after leaving the central bank. Along with being on the boards of UPS (UPS) and Coupang (CPNG), one of South Korea’s leading e-commerce companies, he is also a partner in the investment firm of billionaire investor Stanley Druckenmiller. He attended Harvard Law School and Stanford Law School.
The tenure of current Fed president Jerome Powell expires in May. The administration will be “announcing somebody probably early next year” for the position, according to Trump’s statement earlier this month. There may be one or two more interviews this week and next, Treasury Secretary Scott Bessent said Fox Business Network on Tuesday, adding that he anticipates the decision in early January.
The independence of the Fed
Trump has urged the Fed to lower interest rates more quickly, claiming that inflation has decreased. A group of Deutsche Bank economists led by Matthew Luzzetti stated in a note that although Warsh has recently advocated for lower rates, he “skewed more hawkish than his colleagues” when serving as Fed governor. “Hawkish” refers to a lack of support for accommodating monetary policy or rate reductions.
The Deutsche Bank economists continued, “Markets will want the next Fed chair to demonstrate independence and credibility on inflation.” “For this reason, we remain skeptical that policy will change in a discrete way in June once the leadership handoff takes place, especially since the chair has just one vote amongst a particularly divided committee,” Luzzetti and the others wrote.
For his part, Hassett has refuted concerns that, if appointed Fed chair, he would merely support Trump’s agenda. Hassett has been the director of the National Economic Council in the White House this year.
E.J. Antoni, top economist at the Heritage Foundation, a research organization that supports Trump policies, told Hassett’s detractors that if he becomes head of the Fed, he might change.
“I don’t understand the concern that if you wear one hat one day, you’ll always wear that same hat every day for the rest of your life,” Antoni stated to MarketWatch. “I don’t understand the concern that simply because one person was involved in seemingly partisan activities, that they would always be partisan in all endeavors.”
Additionally, Antoni, a Trump candidate who was rejected earlier this year to lead the Bureau of Labor Statistics, stated: “The talk of Fed independence, I think, is much overblown.” “People tend to forget that the Treasury secretary had a seat on the central bank’s board when the Fed was first established,” he remarked.
