Here's what Kevin Warsh's selection as Fed chair means for the economy, markets and you

By Victor Reklaitis and Greg Robb

Warsh, a former central banker, morphed into a persistent Fed critic

Kevin Warsh, a former Federal Reserve governor, sits second from left as he takes part in a panel discussion in 2024 in Washington, D.C.

President Donald Trump has selected former Federal Reserve governor Kevin Warsh to serve as the next chair of the Fed, putting a well-known critic of the U.S. central bank in its top job.

Trump made the announcement in a Truth Social post at 6:48 a.m. Eastern.

Warsh was the youngest Fed governor in history when he joined the bank's board of governors in 2006, becoming a member of Fed Chair Ben Bernanke's inner circle during the global financial crisis of 2008.

Bernanke embraced Warsh after he had been a top economic-policy staffer for President George W. Bush, and the Fed chief was eager to maintain open communication with the Bush administration during the early stages of the financial crisis.

Warsh eventually broke with Bernanke and resigned his post in 2011, agreeing with Republican critics who argued that the Fed chair's unprecedented bond-buying program to keep long-term rates low following the crisis, known as quantitative easing, gave the central bank too much sway over financial markets.

Warsh has kept up this criticism of the Fed's balance sheet ever since.

"A lot of the battles Warsh is fighting seem to be battles from two decades ago," observed Derek Tang, co founder of LHMeyer/Monetary Policy Analytics. A big question, according to Tang, is how Warsh will adapt to the current day.

Since 2008, the Fed has adopted Bernanke's vision that the central bank should pay interest on excess bank reserves, allowing the Fed to maintain a large balance sheet that can be used to calm markets during emergencies. Warsh has wanted to return to the days of a small Fed balance sheet, when banks borrowed money from each other during emergencies.

Last April, after it became clear Warsh would be a candidate to replace Fed chair Jerome Powell, Warsh gave a stinging speech about other faults of the Fed, saying the central bank talks too much, gets too involved in social issues of the day and allowed Congress off the hook for excessive fiscal spending.

Treasury Secretary Scott Bessent has echoed these criticisms in his public remarks.

"The real question about Warsh is about going forward. What is his view on the proper role of the Fed right now? I don't think we have an answer on that," Tang said.

See: Kevin Warsh says the Fed is broken. He's taking dead aim at Powell's job.

Warsh argued in September 2024 that the central bank should not have aggressively cut its benchmark interest rate by half a percentage point that month. In addition, he has said the Fed hasn't had a serious theory for addressing inflation.

Trump himself has leveled many broadsides at Powell, whom Trump selected for the role early in his first White House term, while also calling for the central bank to lower interest rates.

Most recently, the Trump administration's Department of Justice has targeted Powell in a criminal investigation over whether he lied to Congress about cost overruns for the renovation of the Fed's headquarters. This development is viewed as having the potential to hold up Senate confirmation of Trump's nominee for chair for the central bank.

Even after three Fed interest-rate cuts in 2025, Trump has continued to publicly voice his belief that rates should be "a lot" lower and to suggest that rates should not be raised in a manner that hampers stock-market rallies.

Warsh is married to billionaire Estée Lauder (EL) heiress Jane Lauder. Since leaving the Fed in 2011, Warsh's work has included serving as a lecturer at Stanford University's business school and as a visiting fellow at the university's Hoover Institution, a conservative-leaning think tank. He is a partner in billionaire investor Stanley Druckenmiller's investment firm. He also has been on the board of directors for the shipping company UPS (UPS).

Economists say that, having been selected by Trump, it is a given that Warsh will push for rate cuts in 2026. But it remains unclear whether he can convince his new central-bank colleagues to go along with easing.

Warsh's "paper trail" over the past year is a bit challenging to parse, and the market "could be a little jumpy," leading to higher borrowing costs for those seeking mortgages and other consumer loans, Tang said.

When the Fed rate cuts are enacted, borrowing costs tend to drop across the board for consumers.

-Victor Reklaitis -Greg Robb

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