The BareStory
President Donald Trump is considering former Federal Reserve governor Kevin Warsh as a leading candidate to succeed Janet Yellen as Chair of the Federal Reserve. Yellen's term is scheduled to expire in February 2018. Warsh, who served on the central bank's board from 2006 to 2011, is currently a visiting fellow at the Hoover Institution and a lecturer at Stanford’s Graduate School of Business. He previously advised Jeb Bush’s 2016 presidential campaign and served on a strategic policy forum for President Trump.
The potential nomination has generated debate regarding Warsh's qualifications and policy record. Unlike recent Fed chairs, Warsh does not hold a Ph.D. in economics. Supporters argue this lack of a doctorate offers a "real-world" business perspective and view him as a "change agent" capable of reforming the central bank. Conversely, critics view the credential gap as a weakness. Analysts suggest a Warsh-led Fed would likely shift toward a "hawkish" stance, favoring faster interest rate hikes and a more rapid unwinding of the Fed's balance sheet compared to the Yellen era.
Proponents, such as economist Stephen Stanley, highlight Warsh's experience working during the 2008 financial crisis. However, detractors, including former Minneapolis Fed President Narayana Kocherlakota and Nobel laureate Paul Krugman, argue that Warsh’s past calls for tighter monetary policy and warnings regarding inflation were mistaken. Economist Justin Wolfers stated that had Warsh's views been adopted previously, the economic recovery might have been slower.
In addition to Warsh, the President is reportedly evaluating other candidates, including current Fed Governor Jerome Powell, economist John Taylor, and the possibility of renominating Yellen. A final decision on the position is expected in the coming weeks.
How it may affect me
As a U.S. reader:
• You may experience faster interest rate hikes, as analysts suggest a Warsh-led Federal Reserve would likely adopt a "hawkish" stance favoring quicker increases compared to the current tenure of Janet Yellen.
• The central bank's strategy for managing national assets could change, with Warsh expected to pursue a more rapid unwinding of the Federal Reserve's balance sheet.
• The pace of economic recovery could be impacted, as critics warn that Warsh's preference for tighter monetary policy might slow growth, while proponents argue his "real-world" business experience is necessary for reforming the bank.
• You might observe a shift in how economic decisions are justified, moving away from the specialized academic credentials of recent chairs toward the business-oriented perspective Warsh proponents champion.
