Welcome Kevin!

Welcome Kevin 

Kevin Warsh has been nominated to lead the Federal Reserve as its next chairman replacing Jerome Powell.  Mr. Warsh has for most of his career been known as a hawk on inflation and not a fan of quantitative easing.  He has made statements in the past about shrinking the Federal Reserve’s balance sheet which would provide materially less support for the bond market. 

More recently, he has echoed some of Treasury Secretary Scott Bessent’s comments about how artificial intelligence will drive productivity gains over the foreseeable future which is expected to drive the American economy without significantly increasing inflation. 

Productivity increases mean that existing workers gain additional technological tools which allow them to produce more, which means there are fewer workers needed because existing workers can get more stuff done.  Productivity gains allow for real wage increases and have been the driving force behind American exceptionalism over the past several decades. 

President Trump recently said that he expected Mr. Warsh to cut interest rates and said that Mr. Warsh would not have gotten the job if he had not discussed cutting interest rates in his interview.  We expect him to be a pragmatic professional.  He will be a voting member, but there are other voting members.  The chairman cannot set interest rates unilaterally.   

Presidents appoint new members to the Federal Reserve, and they have their own agenda.  One of the key hallmarks to a strong economy is an independent Federal Reserve.  Inflation got out of control in the late 1970’s and early 1980’s because of political meddling and required years of punitively high interest rates to bring down price increases. 

An independent Fed matters more than any one of its members.  The Federal Reserve is responsible for price stability and for full employment.   Their only tools are interest rates and their balance sheet.  With these, they control the money supply, and the system works better than any other central bank in human history.  Welcome to your new job Kevin.  We are all rooting for you.