Topline
President Donald Trump announced Friday his pick for the Federal Reserve chair is Kevin Warsh, a former central bank official-turned-critic and aide to former President George W. Bush with familial ties to a longtime billionaire Republican donor.
Warsh has claimed the Federal Reserve’s monetary policy “has been broken for quite a long time.”
Copyright 2014 AP. All rights reserved.
Key Facts
Warsh, 55, earned a law degree from Harvard University in 1995 before becoming a banker at Morgan Stanley, where he later served as vice president and executive director before joining the Bush administration in 2002 as executive secretary at the National Economic Council.
Bush nominated Warsh to serve on the Federal Reserve’s Board of Governors in 2006, with Warsh becoming the youngest person ever to join the central bank at 35.
During the 2008 financial crisis, Warsh aided in the government’s bailout of insurer AIG and assisted in JPMorgan’s acquisition of Bear Stearns, an 85-year-old brokerage that collapsed as the investment banking industry failed.
Warsh criticized the Fed’s decision to quickly lower interest rates during the financial crisis, arguing the cuts would only spur inflation, and was the only Fed official to argue against the central bank’s plan in 2011 to buy $600 billion in Treasury securities.
Kevin Warsh’s Ties To Estée Lauder’s Billionaire Heir—and Donald Trump
In 2002, Warsh married billionaire Jane Lauder, granddaughter of Estée Lauder with a net worth of $2.7 billion. Warsh’s father-in-law is billionaire Ronald Lauder, who was a classmate of Trump’s in the 1960s and later donated to Trump’s presidential campaign in 2016 (he’s worth $5 billion as of Friday). Ronald Lauder is reportedly credited with spurring Trump’s interest in the U.S. buying Greenland.
How Have Betting Markets Reacted?
Online betting markets predicted in December that National Economic Council Director Kevin Hassett was the front-runner to replace Powell as Federal Reserve chair. However, the odds began shifting in Warsh’s favor since the start of the new year. Hassett’s odds peaked at around 84% on Polymarket in December, but later ended up dropping to 1%. Since Trump’s remarks on Thursday night, both markets swung in Warsh’s favor. Trading volume for bets on the Federal Reserve Chair crossed $307 million on Polymarket and $90 million on Kalshi.
What To Watch For
Trump’s nominee will need to be confirmed by the Senate and the path may not be straightforward. One key GOP lawmaker, Sen. Thom Tillis, R-N.C., who sits on the Senate Banking Committee, has said he will block any Fed nominees until the U.S. Justice Department resolves its probe into Powell and the central bank’s renovation of its Washington building. Tillis said Friday that Warsh is a “qualified nominee with a deep understanding of monetary policy,” though Tillis noted his stance “has not changed” and he would oppose any Fed nominee. Tillis reiterated his stance on Thursday, telling reporters: “The Fed noms are not going to change until the investigation and potential indictment of Chair Powell is completed … DOJ’s got to decide when I lift those holds. It gets lifted the day that case is adjudicated or withdrawn.”
Key Background
Powell’s term is set to end in May, though he could stay on the board as governor until 2028. This, however, would be a major departure from set precedent and it has not been done since the 1940s. Powell has been one of Trump’s top targets for criticism and ridicule since the president started his second term last year, disagreeing with the majority of the chair’s decisions. Trump’s Department of Justice launched an investigation into Powell, who cannot be simply fired by the president, this month over alleged false statements he made in testimony about a $2.5 billion renovation of the Federal Reserve’s headquarters, which Powell has vehemently denied. Powell responded to the federal probe with a combative statement saying: “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.” He added that the issue is about “whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead, monetary policy will be directed by political pressure or intimidation.” Powell has not yet confirmed if he intends to remain on the board or leave after his chairmanship ends.
Further Reading
Trump Claims US Should Pay World’s ‘LOWEST’ Interest Rates After Fed Paused Cuts (Forbes)
Why The Trump Administration’s Investigation Against Jerome Powell May Not Succeed (Forbes)