“Institutional drift [i.e. Fed], failure to satisfy its statutory remit, contributed to an explosion of federal spending, outsized role, and under performance.”      Kevin Warsh, April 2025

GFC-tested

The youngest appointee in the Federal Reserve’s history, Warsh served as a member of the Federal Open Market Committee (FOMC) from 2006-2011. During his tenure, he never dissented. He supported rate hikes in late 2006 and, supported the Fed’s actions during the financial crisis - including the first round of quantitative easing (QE1).

He was characterized by his insistence on the risks of inflation throughout 2008 and up until the financial crisis. Just before the collapse of Bear Sterns in early September, he stated, “I'm still not ready to relinquish my concerns on the inflation front”.

Additionally, he had strong reservations with the second round of QE, arguing that reducing the long-term rates amounted to manipulating capital allocation – something he viewed as neither prudent nor the role of the Fed.

These two aspects of his tenure explain why some observers consider him to be hawkish. However, from our perspective it is less about being hawkish than having a specific take on the role of the Fed, which in fairness is probably more in line with the origins of its foundation.

The GFC episode highlighted his steadfastness and composure in times of crisis, acting as a trusted Lieutenant to then-Chair Ben Bernanke, and an effective channel to Wall Street, drawing on his decade of experience in the private sector.

From academia to macro markets

Beyond his experience in policy, Warsh has a strong footprint in academia and markets: he lectured at Stanford University and served on several boards.

He has also been a partner at the family office of Stanley Druckenmiller - an alumnus of George Soros’ Quantum Fund, where he previously hired no other than … Scott Bessent, the current Treasury Secretary.

Druckenmiller has described Warsh as one of the best equipped candidates for the role, while dispelling the view that he's merely a hawk - pointing out that he has seen “him go both ways”, depicting a pragmatic rather dogmatic character.

A 15-year stint at such an institution should bring a wealth of experience with regards to financial markets - alongside a clearer view of how the Fed’s mandate influences behavior across the economy, impacting outcomes, and the flow of capital through markets.

All one needs to do is to listen

We’d highly recommend readers to listen to Warsh’s one-hour conversation at the Hoover Institution in May 2025, titled, “Inflation Is A Choice”. When the source material is this direct, the best insight is often simply his own words.

What stands out is the amount of time and thought Warsh appears to have devoted to first principles: what the Federal Reserve System is, and what is should be after more than a century in operation. He mentions revisiting the thinking of Milton Friedman (whom he studied under), including going into the Hoover Institution archives to read correspondence between Friedman and Paul Volcker.

Notably, the interview suggests that – months before the US President’s decision – Warsh was already working through the Fed’s framework, the boundaries of its mandate, and what he would like to achieve.

Some salient excerpts of the interview.

I. Pragmatism

• “Might it have been better or worse had we made different choices along the way, but you have to deal with what's right in front of you.”

II. Fed mandate and “restoration”

• “So you're prepared to cross more lines than you would in benign times. You're prepared in some sense, as Paul Volcker famously said, then go to the very edge of your authority.”
• “You see members of Congress and importantly, you see businesses, they now hire lobbyists to go to the Central Bank seeking relief. This is a historical, this is, in my view, dangerous, it takes the responsibility and accountability of fiscal policy and brings it to the Central Bank”.
• “I believe the Federal Reserve is up to reform, heal thyself is an important thing for all institutions”.
• “The Fed doesn't need a revolution. It's had a revolution in the last decade. What it needs is some degree of restoration.”
• “Irresponsibility runs in both directions. The connection between fiscal spending, that is what Congress does, and monetary printing, that's what the Central Bank does.”       

III. Economic projections and monetary policy 

• “I believe we are on the front end of a productivity boom.”
• “If we would run the printing press a little quieter, we could then have lower interest rates because what we're doing right now is we have all this money that's being flooded into the system which causes inflation to be above target”.
• “I'm willing to take the upside of economic growth here, and I'm willing to bet that the Central Bank fixes matters that are broken, achieves price stability yet again”.

How long will the honeymoon last? 

We expect incoming Chair Warsh to be reluctant to use unorthodox monetary policy tools, and instead to prioritize a return to the Fed’s core mandate and traditional policy framework.

He is also likely to push back against political and lobbying pressure – from Capitol Hill and the Treasury department – despite his proximity to Scott Bessent.

Warsh has a distinctly “Miltonian” view of money – he frames today’s abundance of liquidity as a key driver of inflation. In his words, by printing less the Fed could even aim for lower interest rates.

Interestingly, he sees a big (AI-led) economic growth boom ahead, yet remains confident that it need not translate into a sustained inflation problem.

Taken together, those instincts could put him at odds with the current administration. The real question is not whether friction emerges, but how long the honeymoon lasts.