02-11-2026
Now comes the fun part. Kevin Warsh survived the very public gauntlet of presidential screening and emerged as President Trump’s pick to be the next chair of the Board of Governors of the Federal Reserve System (Fed). Assuming he is confirmed, he will assume the duties at a fraught moment for monetary policy.
By statute, the Fed has a dual mandate to deliver price stability — interpreted as inflation consistently near the 2 percent target — and full employment, interpreted as strong, steady employment growth. At present, inflation remains just below 3 percent and has exceeded the target for more than four years. Meanwhile, employment growth slowed to a near standstill in 2025. Where should the Fed focus its attention?
At the last meeting of the Federal Open Market Committee (FOMC, the policy-making body of the Fed) 10 of the members voted to keep interest rates unchanged on the grounds that inflation remained elevated, but employment growth was solid enough. Two members dissented in favor of lower rates, arguing that inflation is on track to return to the target, but the labor market needs a boost.
Warsh has traditionally been an inflation hawk, which would seemingly put him in the first camp. But he has more recently argued that the Fed has room for additional interest rate cuts, seemingly siding with the latter group. One can be an inflation hawk and favor less restrictive monetary policy if the macroeconomy is experiencing a boom in productivity that would permit supply to match demand growth without triggering inflationary pressures.
Indeed, productivity grew at a 4.9 percent annual rate in the third quarter of 2025 (the most recent quarter for which data is available). But one quarter does not a boom make. Is Warsh prepared to make this argument, make it now, and support the position with convincing empirical evidence?
Similarly, Warsh has argued that the Fed’s portfolio, which has ballooned from under $1 trillion in 2006 to nearly $7 trillion at present, represents an inappropriate interference in capital markets and should be trimmed back. Unfortunately, the FOMC just voted to do the reverse and is currently engaged in asset purchases. As part of that process, the Fed is buying up Treasury securities. Again, this is at odds with a Warsh dictum that Fed independence is best assured by refusing to aid and abet the Treasury’s profligate borrowing.
In short, Warsh enters at a time when the top policy objective is unclear, there is disagreement regarding the settings for monetary policy, and the FOMC is headed away from Warsh’s preferred positions.
For this reason, the primary challenge is leadership. Mr. Warsh is familiar with the Fed from his 2006-2011 tenure on the Board. As with any executive being elevated to the top job, it is very different and challenging to manage that Board to reach consensus (or near consensus) on policy and to convey the logic and evidence for its position to the public.
He must also work with the current administration, which tends to prefer decisive action over consensus-building and complex economic analyses, and who strongly favors lower interest rates than those currently in place.
Douglas Holtz-Eakin is a Distinguished Fellow at Purdue’s Mitch Daniels School of Business and the President of the American Action Forum. He served as a senior economic and chief economist for the President's Council of Economic Advisers, and was the sixth director of the Congressional Budget Office. Doug blogs on The Daily Dish.
