Kevin Warshs nomination to Fed is one of Trumps smartest moves and a partnership he needs to make work
Kevin Warsh may be gearing up for the toughest job in the US government as new chairman of the Federal Reserve: He needs to stay true to his rep as a hawk on inflation — while at the same time playing nice with the guy who just nominated him. The latter happens to be President Trump, whose instincts are to rev the economy to 6% growth and worry about inflation later.His instincts are also to jawbone any Fed chair to make that happen even if it means slashing interest rates to zero. If anyone can walk this very precarious line, it’s Kevin Warsh. That’s because Warsh has been preparing for this day for at least a couple of decades.
He knows the Fed has been on dangerous ground in recent years straying from its “dual mandate” to maintain low inflation while it seeks strong employment in controlling the nation’s money supply.After all the drama over Trump’s decision, it’s time not only for relief but also celebration. The first time I met Warsh was in 2008.The economy was on the precipice.
He was a Fed governor, one of the key officials at the central bank making sure the US economy didn’t implode in a 1930s-style wipeout as the banking crisis was cascading through the financial system. Warsh had some government experience, but he really cut his teeth as an investment banker at Morgan Stanley, with real-world knowledge of what the financial sector means to the overall economy. He and Tim Geithner, the New York Fed chief who was soon to become President Obama’s Treasury secretary, working alongside President George W.Bush’s Treasury Secretary Hank Paulson and then Fed Chair Ben Bernanke, saved the banking system and the economy from Armageddon by flooding the system with cheap money when it needed it most. What Warsh did next, in my opinion, was even more important.
Effectively, he cast himself as a Cassandra, warning that a policy that worked well in the middle of a crisis was now setting the economy up for runaway inflation, the most i...