Kevin Warsh is one of the most high-profile nominees from President Donald Trump at the moment, and in a new piece from Friday morning, the New York Times Editorial Board grilled him on several key questions and accused him of having a “credibility problem.Warsh, a financier and former member of the Federal Reserve Board of Governors, is Trump’s nominee to replace Jerome Powell as Fed chair when his term ends in May. The position has garnered a much more intense spotlight than usual since Trump’s return to the White House, as he has put intense pressure on Powell over his refusal to cut interest rates to the president’s liking. This has, so far, spurred Trump to repeatedly threaten to fire Powell, something he is limited in his ability to actually do, and led to a Justice Department investigation, which has been widely criticized as an intimidation tactic.Given all of that, there have been major concerns that whoever Trump nominated as the next Fed chair would be a subservient loyalist, willing to cut interest rates to the president’s desired level without regard for the wider impacts on the economy and inflation. Experts have largely been split, with some viewing Warsh as a level-headed, sober-minded choice who will take the job seriously, and others dismissing him as a political “hack.”In its latest piece, the NYT board said that Warsh “looks great on paper” as a Fed chair nominee and has “many admirers both on Wall Street and in Washington.” Beyond that, though, they also said that he has a “credibility problem,” given Trump’s attack on the Fed’s independence and his explicit pledge to nominate someone who will cut interest rates. With that issue in mind, the board proposed three key questions that must be asked of him.”Is Mr. Warsh committed to Fed independence and to fighting inflation?” the board asked first, noting that Warsh had previously opposed interest rate cuts during the 2008 financial crisis and warned against stimulus efforts in its wake. “But in recent years, Mr. Warsh has sounded less worried about inflation and more worried about pleasing Mr. Trump. In 2018, during Mr. Trump’s first term, Mr. Warsh went to bat for the president, arguing that the central bank should extend the stimulus campaign he had once opposed. Since Mr. Trump’s return to office last year, Mr. Warsh has resumed his advocacy for easy money.”Secondly, the board asked, “Does Mr. Warsh plan to hand over the Fed’s keys?” Highlighting a “worrying sign for the Fed’s independence,” the board noted that Warsh has proposed involving the Treasury Department in matters involving the “cetnral bank’s balance sheet.””The proposal is narrow and technical, but the precedent is dangerous. It would give Treasury officials, who answer to the president, a formal role in shaping the Fed’s monetary policy,” the board explained.Finally, the board asked, “Does Mr. Warsh have too much faith in financial markets?””Mr. Warsh has acknowledged that he was among those who failed to understand the weakness of the financial system before the 2008 crisis,” the board continued. “So did many experts. We are more concerned that he does not seem to have grasped a central lesson of that crisis — that vigorous government oversight is necessary for markets to remain healthy and to function properly.”It added: “His distaste for regulation is particularly concerning because financial innovation is straining the current system. Crypto and private credit are moving a growing share of financial activity beyond the reach of existing rules and regulators. The rise of new, unregulated forms of finance is a longstanding pattern. The moment requires a Fed chair who understands the need for new rules to prevent meltdowns.”
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