The speculation is over. President Trump has officially announced Kevin Warsh as his pick for the next Chair of the Federal Reserve, declaring on Truth Social that Warsh “will go down as one of the GREAT Fed Chairmen.”
If you have been following the headlines, you know Warsh is not your typical academic economist. He is a former investment banker, a veteran of the 2008 financial crisis “War Room,” and a vocal critic of the Fed’s current playbook. But we believe if you dig into his record, you realize that labeling him a “hawk” or a “dove” may miss the point. He is a “practitioner” who believes the Fed has lost its way.
Here is the breakdown of who he is, how he handled the COVID crisis, and why he promises a “regime change” at the world’s most powerful central bank.
We Don’t Believe He Will be the Next “Arthur Burns”
Let’s address the elephant in the room. Whenever a President nominates a Fed Chair who talks about coordinating with the White House or cutting rates, Wall Street whispers two words: Arthur Burns.
For those who don’t spend their weekends reading monetary history, Arthur Burns was the Fed Chair in the 1970s. He is infamous among economists for caving to political pressure from President Richard Nixon. Nixon wanted easy money and low interest rates to boost the economy before the 1972 election. Burns complied, kept the money spigots open, and the result was the “Great Inflation” – a decade of skyrocketing prices that devastated the American economy and destroyed the credibility of the Fed.
Why We Believe Warsh is Different
Warsh has built his post-Fed career on the exact opposite principle. He views inflation not as an accident or a weather event, but as a “policy choice” made by weak leaders. Throughout 2021, while the current Fed leadership was insisting that inflation was “transitory” and due to supply chains, Warsh was practically screaming from the rooftops that they were wrong.
He argued that by keeping interest rates at zero while the economy was booming, the Fed was “filling the punch bowl” in the middle of a raging party. We don’t think a man who spent 2021 criticizing the Fed for being too loose is someone who will let inflation run rampant just to please a President.
Historical Stances: The Crisis Manager (2008 & COVID)
To understand where Warsh is going, you have to look at how he acted during the two biggest economic shocks of our lifetime. His record reveals a specific philosophy: Overwhelming force during the panic. Rapid withdrawal during the recovery.
1. The 2008 “War Room”
Warsh was the youngest Fed Governor in history when the 2008 crisis hit. He did not rely on academic models. He relied on his background in M&A (Mergers and Acquisitions) to understand the plumbing of Wall Street.
- The Action: He voted for the bailouts and the initial liquidity floods because he viewed the situation as a “panic,” an existential threat where the plumbing of capitalism had broken.
- The Pivot: But once the panic subsided, he wanted out. He nearly dissented against “QE2” (the second round of money printing) in 2010, arguing that it was “financial repression” and a way of punishing savers to help the government borrow cheaply. He resigned in 2011 rather than support the permanent expansion of the Fed’s footprint.
2. The COVID-19 Response: A Tale of Two Crises
Warsh’s stance during COVID is the perfect illustration of his “Crisis vs. Normalcy” doctrine.
Phase 1: The “Liquidity Bridge” (March 2020) When the pandemic hit, Warsh did not hesitate. He supported the Fed’s aggressive initial response. In March 2020, he argued that because the government had forcibly shut down the economy by fiat, it had a moral obligation to keep solvent businesses alive.
- He called for a “Liquidity Bridge” to carry companies across the valley of the lockdown.
- He famously told policymakers to “stay focused to the left side of the decimal point.” In other words, do not worry about whether inflation is 1.7% or 1.9% when the economy is collapsing. Just stop the collapse.
Phase 2: The “Inflation Culprit” (2021) However, as soon as the economy reopened, Warsh pivoted hard. By early 2021, with GDP surging, he argued the Fed was fighting the last war.
- “Transitory” Error: While the Fed claimed inflation was temporary, Warsh blasted the “transitory” narrative as a dangerous excuse to avoid tightening policy.
- The Housing Bubble: He was particularly critical of the Fed continuing to buy Mortgage-Backed Securities (MBS) well into 2021. He called it “reckless” to subsidize the housing market when home prices were already skyrocketing.
- The Verdict: He wrote op-eds accusing the Fed of becoming the “main inflation culprit,” arguing that their refusal to normalize policy created the very inflation spiral we are dealing with today.
The “Death of the Phillips Curve”
Perhaps Warsh’s most radical departure from the current Fed consensus is his rejection of the “Phillips Curve,” the academic theory that to lower inflation, you must have higher unemployment.
For decades, the Fed has operated on the belief that if the economy grows too fast or workers get paid too much, inflation will follow. Therefore, to fight inflation, they believe they must raise interest rates high enough to “cool off” the labor market (i.e., put people out of work).
Warsh calls this “dogma” and believes it is dead.
- Growth is Not Inflationary: Warsh argues that “inflation is a choice” made by printing too much money, not a side effect of Americans getting richer. He believes the Fed should abandon the idea that prosperity causes higher prices.
- The Productivity Boom: Warsh is incredibly bullish on the supply side of the economy, specifically regarding Artificial Intelligence (AI). He argues we are on the verge of a productivity boom. When workers become more productive (producing more widgets per hour), companies can pay them higher wages without raising prices.
- Lower Rates for Supply: This is why he believes cutting rates can actually help fight inflation. He argues that high rates are currently crushing business investment (CAPEX). If you cut rates, businesses will invest in new factories, energy production, and AI technology. This creates more goods and services (supply abundance), which naturally drives prices down.
In Warsh’s view, the current Fed is trying to crush demand, whereas he wants to unleash supply.
Future Stances: The Agenda for “Regime Change”
Warsh has explicitly called for a “regime change” in how the Fed operates. Here is what we think it may mean for the economy:
1. The “Supply-Side” Rate Cut Most economists think you raise rates to fight inflation. Warsh argues that in our current economy, keeping rates “higher for longer” is actually counterproductive because it strangles the supply side. He wants to cut rates to encourage the investment needed to fix supply chains and boost energy production. He wants to fight inflation with abundance, not austerity.
2. A New “Treasury-Fed Accord” Warsh argues the Fed and the Treasury are currently working at “cross purposes.” He wants a formal coordination policy similar to a historic agreement from 1951 where the Fed and Treasury align on debt management.
- This would likely mean the Fed stops buying government debt (Quantitative Tightening) while the Treasury coordinates its issuance to avoid spiking yields. It is a move to stop “fiscal dominance,” where the Fed is forced to print money just to pay the government’s bills.
3. The Death of the “Retail” Central Bank Digital Currency (CBDC) If you are worried about a “Digital Dollar” tracking your every purchase, Warsh is your ally.
- Retail CBDC: He vehemently opposes a digital currency used by individuals, calling it a “financial panopticon” that threatens privacy and would destroy the commercial banking system.
- Wholesale CBDC: However, he does support a “Wholesale” digital currency (used only between banks) to speed up global settlements and compete with China’s digital yuan.
The Bottom Line
Kevin Warsh may represent a hard pivot from the academic, data-dependent Fed of the last decade. He believes the Fed has “lost its way” and needs to get back to basics: sound money, a smaller balance sheet, and a refusal to let inflation destroy the currency.
He might cut rates, but do not expect him to be Arthur Burns. We believe he isn’t cutting rates to juice the poll numbers. He is doing it because he believes it is the only way to rebuild the supply-side engine of American capitalism.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.
Works cited
1. Rejecting the Requiem – Federal Reserve Board, https://www.federalreserve.gov/newsevents/speech/warsh20101108a.htm
2. CENTRAL BANKS AND FINANCIAL TURMOIL Thomas M. Hoenig The Long-Run Imperatives of Monetary Policy and Macroprudential Supervision – Cato Institute, https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2017/5/cj-v37n2.pdf
3. FOMC Meeting Transcript, November 2-3, 2010 – Federal Reserve Board, https://www.federalreserve.gov/monetarypolicy/files/FOMC20101103meeting.pdf
4. Kevin Warsh, a leading candidate for Federal Reserve Chair, stated that inflation is a ‘choice’ and views Bitcoin as a significant asset., https://news.futunn.com/en/post/68177502/kevin-warsh-a-leading-candidate-for-federal-reserve-chair-stated
5. Reconstructing the Fed | Mauldin Economics, https://www.mauldineconomics.com/frontlinethoughts/reconstructing-the-fed
6. Treasury Secretary Contender Kevin Warsh Was an Early Investor in Crypto Startups, https://unchainedcrypto.com/treasury-secretary-contender-kevin-warsh-was-an-early-investor-in-crypto-st