Which Warsh Leads The Fed

We weigh whether Kevin Warsh will lead as a hawk, a dove, or a markets-first stabilizer, and why that framing may miss his core strength: structure and confidence. We map how board dynamics, politics, and tariffs shape the rate path and market stability over the next few months.

• Walsh’s background and crisis-era credibility 
• Hawk, dove, or structure-first framing 
• Why Trump might pick a market stabilizer 
• Market plumbing versus macro models 
• Rate cuts, inflation risk, and labor softness 
• Fed board composition as institutional ballast 
• Signals to watch ahead of the May decision

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Chapters

• 0:00 Setting The Stakes: Who Is Walsh
• 2:24 Hawk, Dove, Or Data Dependent
• 3:54 Background Check: Markets Over Macroecon
• 6:24 Why Would Trump Pick Walsh
• 9:54 Market Credibility And Rate Path
• 12:54 Establishment Ties And MAGA Tension
• 15:24 A Middle Course For Stability
• 17:24 Fed Board Dynamics And Safeguards

Transcript

Steve Davenport: 0:26

Hello everyone and welcome to Skeptics Guide to Investing. I'm Steve Davenport and I'm here with Clem Miller. And we're looking at which Warsh is going to show up and go to work in May for the Fed. Um you may say, Steve, that's just , you know, taking some some easy pickings off of the tree because it's clear that the Warsh we have is the Warsh that Trump has taken as an advisor, and he's somebody who Republicans know from his days when he helped Ben Bernanke through the financial crisis. Um and it's very clear from his writings and his research that he's a hawk. Um but there is this kind of question mark. Um one thing I think that I found interesting when looking at Mr. Warsh is that his wife is a granddaughter of Lauder, the Estee Lauder fortune. So they're worth about two and a half billion with a B. So his worries every day are not quite the same as some of the people in the population who might be getting beat up by inflation. Um so, Clem, give me the you know, two or three minutes as to which Warsh are we gonna see? Is it gonna be somebody who follows what Trump wants and lowers rates quickly? Is it gonna be somebody who is always worried about inflation and is gonna be prudent in how he listens to or appraises the data that's coming in regarding inflation? Or are we just gonna see rates go down one to one and a half percent, as Trump would like in the next six months?

Clem Miller: 2:14

Which was well, I think he I think he's going to be an inflation hawk. Uh, and also, yeah.

Steve Davenport: 2:25

Trump said he was gonna sue him if he didn't if he didn't lower rates. Telling me that our head of the Fed is gonna get sued by the president, he threatens to sue everybody, right? He's threatening to arrest Powell. So I think he can he has the fact that you don't only sue him is probably a sign that he respects and likes the man.

Clem Miller: 2:48

Look, I think if you look at the guy's background, you see that he is more interested in the structure of markets than in macroeconomics. Clearly, he's not an economist, not a PhD economist. And and honestly, I think, and neither is Powell, by the way. He's not a PhD economist. And PhD economists, you know, don't think that they know everything, right? They don't necessarily know now, PhDs in economics are basically mathematicians. You ever had any graduate level economics classes? I've had a few of them, and it's basically math. And I love them. That's that's why I love them. I hated them, right? And and so, and so, you know, can you really trust a mathematician to run the economy, right? I don't think so. I think this guy Warsh, when you look at his background, what he did, his role, his successes in 2008 with the great financial crisis, , I think, you know, working with the Fed, Bernanke and and so on, , I think that it's clear that he is a guy who is focused on markets, on structures in markets, how to create confidence in markets. And I think for that reason, he's an excellent choice, although a choice that seems unusual for Trump to have made. Now, why did Trum p pick him would be your next question, right? And I think Trump picked him because of the way he picked Pete Hegseth. He looked at Pete Hegseth and said, Well, I've seen him on TV, and he looks like he looks like the kind of guy I want as my hawkish, that is in a defense term, hawkish defense secretary. Right? I mean, he himself, Trump, has said that he wants to see he wants to see cabinet members and others come right out of what he called refers to as central casting. I was gonna say, is it and I think he looks at Kevin Warsh as from central casting, and he looks at his his White House economic advisor, Kevin Hassett, as not exactly coming out of central casting. So I think that I think that's why he picked Kevin Wars because he appeared to come out of central casting. And maybe Warsh made some noises to him about you know reducing rates if the data you know supports it or if market structures support it. And , and so that's probably why we're seeing him nominated as you know as the Federal Reserve Chairman.

Steve Davenport: 6:10

I have one word for you, Glen. And this is, you know, I I don't want you to take this personally, but have you heard about the taco? I mean, I think when you look at Trump, you say he was not very happy with the response to his tariffs, right? Yeah, he wanted them to be accepted as enlightening and as a new world order and bringing America greatness to everyone. And when the market didn't react that way, I think he was a little bit shaken. And I think he's been shaken before in certain cases when what he said has not been accepted by the markets. And in my mind, he looked at Warsh as probably the most acceptable choice. I think the markets might have liked Rick Reeder a little bit better because his fixed income background, I think, versus Warsh's, you know, mergers and acquisition and an academic from Stanford background. But I think that, you know, they're both exceptionally talented, bright people. They both had great impressions and they're both respected when they speak. I think that why Warsh works is I think Warsh works because he's , you know, he is an intelligent voice for the markets. And therefore, I think he likes the fact that he can talk to him. He's been involved in previous Republican administrations, and I think he, you know, has done a good job. Is he going to be Trum p's answer for lowering rates? I don't know. I think that we don't know because we don't know what the data's gonna be like. I do think the Fed has some inkling that the economy could be weaker than we expect. But if inflation is stronger than we expect, then I think they are in with a typical tough spot. If if we are weaker and the jobs data, from what I'm seeing, looks to be weaker than is being understood, then yes, I think he will work towards doing what Trump wants, , but he'll work for towards it with his Harvard law degree and his undergraduate from Stanford in economics. And I think he is what I would call , and I think it's a little cheapening for his background, out of central casting. He's who you would look for if you said, hey, I want an intelligent Wall Street person who is respected by the Fed and has been around the Fed and he's been around markets to tell me what's happening.

Clem Miller: 8:57

Absolutely. And and what's what's interesting here is that this guy, Warsh, he's sort of the opposite of MAGA crowds would want in this position. He is he not only is he Wall Street, , he is a guy who is a member of the group of 30 and the Bilderberg group. And you might remember, like, you know, years ago, people would talk, and I think it's still around, the Trilateral Commission, you know, US, Europe, Japan, and you know, this kind of shadowy group of people who run the world, supposedly. Uh you know, the trilateral committee committee being invent invented by trilateral commission being invented by the Rockefellers, right? Well, now you've got this group of 30, and you've got Bilderberg group, and these are kind of the modern shadowy groups that that you know are alleged to be running the world. And it's just sort of the opposite of what you know what MAGA pretends to be and what you know Trum p is pretending to be. I mean, he looks at the world and says, hey, you know, you know, I I want to fight back against these you know these, you know, to use this expression, which is slightly anti-Semitic in some ways, is the globalism, right, of the world. Uh and that that's what he and his MAGA people talk about. And when they talk about that, what are they referring to? They're referring to to groups like trial Trilateral Commission, Bilderberg, and and group of 30. You know, these are the people who run the world according to you know mythology, right? Uh and conservative and and and right-wing mythology, they run the world. And , and so you know, I you know, I think that you know he is the opposite of what the MAGA people would want. And he's exactly what the the global financial establishment wants to see in that position.

Steve Davenport: 11:16

Yeah, I just think that you wouldn't have picked somebody with such strong positions unless you were trying to satisfy some part of the way that you're perceived. And so, as much as I think Trump is all about himself and his ego, I think he stepped outside of that for a moment and said, I really don't want this economy to go off the rails. So I want to put somebody in place who I think is going probably make and explain and organize the decisions such that they will be accepted by markets and there won't be a market clearing event where everybody will say chaos has taken over. So I don't think he's necessarily going to be overly hawkish. I don't think he's gonna be overly dovish. I think he looks at himself as in the middle of one of the biggest, you know, moments of his life. And I think he looks at Trump and says, okay, we're going to the midterms here. He's got two more years. You know, I'm getting six-year term. I think of what I have to do as not just satisfy Trump's short-term goals, but satisfy the world's long-term goals. So I'm a little bit pleased that he didn't pick somebody with, you know, strictly he's gonna, because he he picked somebody from within the Fed. If he really wanted change, if he really was upset at Powell, why would he pick somebody with so many internal connections to the Fit? Exactly. I mean, he supported Bernanke. I would look at him and say, Well, Trump appointed Powell. He appointed Powell and Powell, like most people, Clem, I don't know about you, but sometimes your boss hires you and says he wants to do X, but then your boss changes his mind and wants to do Y. So I I think that he hired him at a moment and he had ideas, and then I think those ideas changed when he was out of office for four years, and now he's a different person. I think we all change as we go through experiences, and I think Trum p has changed, and I think he's probably, you know, , I don't I don't think Warsh is perfect by any means, but I do think it was an unusual choice, and I guess if I was to wrap it up, I'd say the wash we got is gonna be a lot different than I think the wash that Trum p wants. And I think that's what that's which wash I think we have. What would you summarize as the which wash do you think we have? Is he a dove or is he a hawk? Or is he somewhat neutral?

Clem Miller: 14:07

I think he falls outside of the hawk-dove perspective that the rest of the world imposes on the Fed. I think he's a structure, a markets and structure guy, primarily. And you know, he may allow others to do the heavy lifting on rates while he focuses on trying to keep the markets together and the markets happy and and structures sound while you know the rest of the world, the economic world around us, the trading world, the tariffs, et cetera, become somewhat chaotic. So I think he's he's a structural linchpin and not necessarily somebody who focuses on rates. That's that's the way I look at it.

Steve Davenport: 15:01

Okay, I agree with that. I'm not I'm not saying he's going to be one way or the other. I kind of look at him as he's got to figure it out. I think that the variables we still don't know are is Powell gonna continue? Is Cooks gonna be ousted by the Supreme Court? I mean, those two answers are gonna be two key votes as to what exactly and I think we don't have that answer. We don't really know.

Clem Miller: 15:29

And with regard to Federal Reserve board composition, including both the permanent members and the rotating members, one of the things that that the Fed did a few months ago is they accelerated the reappointment of certain, you know, professional Federal Reserve board members. And and so I thought that was an incredibly smart move by Powell to try to protect the Fed against whomever Trum p might appoint, , you know, in a worst case scenario. And so, you know, the rest of the Fed board, not everybody, of course, but you know, a majority are still very , you know, professional. I wouldn't say they're necessarily all hawkish, but you know, they don't bend to political will. Um whereas and then we've just got this addition of Wars, which makes it even better. So I think I think we're in pretty good shape as far as the as far as the Fed is concerned.

Steve Davenport: 16:33

But I think that I mean the purpose of today was to kind of introduce Wars. And I think that how we will act is in May. And the way things are going, two or three months from now, we could be in a very different market in a very different situation. So I think we have to wait until we see the component of the ward before we really can say whether we think it's gonna be dovish, hawkish, or neutral. So I really think this was meant as an introduction, and I think we cover that note. Um, again, I hope listeners enjoy what we do and how we're doing it. And please let us know what you would like to talk about and what things are most important to you. This is Steve Davenport and Clem Miller. And again, Skeptics Guide wants to help you improve your investing IQ. So thanks for listening, and please have a great week. And we hope you continue to enjoy what we're doing. Thanks.