Kevin Warsh emerges as a surprise contender: Why has this inflation hawk become a top candidate for Fed Chair?

Author: Zen, PANews

Trump recently stated that he will announce the next Federal Reserve Chairman "soon," emphasizing that the new chairman will significantly lower interest rates. Trump's final choice is expected to be announced in early 2026, and just as the White House's selection process for the next Fed Chairman has entered its final stages, former Fed Governor Kevin Warsh has unexpectedly re-entered the core candidate list.

With the Trump team publicly advocating for faster and larger interest rate cuts, Warsh's return has attracted attention. He has experience as a central banker involved in decision-making during the financial crisis and has long been a critic of the Federal Reserve's excessive balance sheet expansion and policy deviations.

Now, Warsh, who is poised to oust the "shadow chairman," is being put to the test on a more pressing issue: how to meet the White House's expectations for low interest rates while ensuring that market confidence in the Fed's independence is maintained.

How to Become an "Inflation Hawk"

Kevin Warsh was born in 1970 into a business family in New York State. He graduated from Stanford University and earned a Juris Doctor degree from Harvard University. After completing his studies, Warsh embarked on a career on Wall Street, working for many years in the investment banking division of Morgan Stanley, specializing in mergers and acquisitions, and rising to the position of executive director. This Wall Street experience gave him a thorough understanding of how financial markets work, which played a crucial role in his later career in public service.

In 2002, Warsh left Wall Street to enter politics. He joined then-President George W. Bush's team as a special assistant to the National Economic Council, participating in the formulation of domestic financial and capital market policies. In 2006, at the age of 35, Warsh was nominated by President Bush to the Federal Reserve Board of Governors, becoming one of the youngest Fed governors in history.

During his tenure at the Federal Reserve, he was responsible for liaising with international affairs such as the G20, accumulating extensive experience in monetary policy. During the 2008 financial crisis, as a board member, Warsh worked closely with then-Chairman Ben Bernanke and New York Fed President Tim Geithner to help financial institutions weather the crisis and participated in the Fed's decision-making process regarding unconventional measures such as quantitative easing.

However, Warsh remained wary of overly loose monetary policy, fearing that quantitative easing could lead to inflationary risks. Shortly after the launch of the second round of quantitative easing, he stepped down from his position on the board in March 2011, a move widely attributed to his concerns about QE and inflation risks. Warsh's principled independence earned him a reputation as an "inflation hawk" in the financial world.

After leaving the Federal Reserve, Warsh returned to his roots, moving into academia and think tanks, continuing to be active at the forefront of economic policy discussions. He became a distinguished visiting scholar at the Hoover Institution at Stanford University and taught at the business school, with research focusing on monetary policy and financial stability. Simultaneously, Warsh was invited to join influential organizations such as the Group of Thirty, frequently writing articles in the media criticizing the Federal Reserve's overly accommodative policy stance.

It's worth noting that Warsh also possesses an impressive network of connections: his wife comes from the renowned Estée Lauder family, and his father-in-law, Ronald Lauder, is a long-time friend and key supporter of President Trump. This provides Warsh with unique resources in both political and business circles. Through his experiences in government, Wall Street, and academia, Warsh has gradually cultivated an image that combines policy expertise with market insight, laying a solid foundation for his pursuit of higher positions.

Why did Walsh break through halfway?

Since Trump's return to the White House, the new administration has been working to find a successor to Jerome Powell as the next Federal Reserve Chairman. Initially, Kevin Hassett, Trump's chief economic advisor, was widely considered the frontrunner. Hassett served as chairman of the Council of Economic Advisers during Trump's first term, closely following Trump's lead and considered a close confidant of the president, earning him the nickname "shadow chairman."

However, Warsh unexpectedly emerged as a frontrunner in the nomination race, winning favor with Trump's team. In early December, Trump revealed that his selection of the Federal Reserve Chair had narrowed it down to "two Kevins"—Hassett and Warsh. Warsh's strong rise has placed him in a position where he can rival Hassett. Trump stated, "I think both Kevins are excellent," implying that the final choice would be between the two.

Warsh's ability to gain traction was inextricably linked to his proactive efforts. Trump revealed that he met with Warsh at the White House in mid-December, during which Warsh directly expressed his support for interest rate cuts. Trump stated that Warsh believed current interest rates "should be lower," a view that coincided with his own advocacy for a more accommodative monetary environment. Warsh's professional background and willingness to align with policy direction, particularly by catering to the White House's demands on interest rates, alleviated some of Trump's previous hawkish stance.

Furthermore, Warsh's network of connections also played a role. Wall Street heavyweights, including JPMorgan Chase CEO Jamie Dimon, expressed their support for Warsh leading the Federal Reserve. Dimon privately stated that while Hassett might be more aggressive in cutting interest rates in the short term, Warsh, with his greater central bank experience, was a more prudent choice in the long run.

Furthermore, shifts in the evaluation of candidates within Trump's staff also contributed to Warsh's breakthrough. Media reports revealed that some officials within the Trump administration privately expressed concerns about Hassett's abilities. These insiders believed that Hassett, as director of the National Economic Council, lacked significant practical decision-making capabilities beyond advocating for Trump's policies. Such concerns led some of Trump's aides to question Hassett's suitability for the highly technical position of Federal Reserve Chairman.

In contrast, Warsh, with his experience as a Federal Reserve governor and expertise in the market, was considered more competent. This debate over "loyalty" versus "professionalism" created a power struggle within Trump's team: on the one hand, the president's political advisors valued Hassett's absolute loyalty to Trump; on the other hand, economic officials such as Treasury Secretary Scott Bessant favored Warsh, who possessed professional prestige.

Mid-December reports indicated that Trump had personally interviewed Warsh, and it was uncertain whether he would meet with other candidates. However, according to mainstream media analysis, by the end of the year, the competition had gradually focused on the "two Kevins." Warsh's emergence from the crowd demonstrates his strategic acumen, network management skills, and ability to flexibly adjust his stance based on changing circumstances. For the Trump camp, he brought both professional credibility and political flexibility, which is precisely why he is a leading candidate for the 2025 Federal Reserve Chairman position.

The Duel of Two Kevins

Due to differences in background and orientation, the two Kevins' economic policy propositions and approaches also differed significantly.

On monetary policy, Warsh has always been known as an "inflation hawk," remaining wary of measures such as quantitative easing. He is strongly concerned about long-term inflation risks and emphasizes that central banks should maintain their resolve in controlling prices. Hassett, on the other hand, is an academic economic advisor rather than a career central bank official, and his stance on monetary policy changes more with political needs.

Under Trump's influence, Hassett's rhetoric has become more dovish in recent years, with public calls for the Federal Reserve to further cut interest rates to stimulate growth. In comparison, Warsh's image is more like that of a traditional central banker, cautious and focused on long-term stability; Hassett, on the other hand, appears as a strategist who flexibly adapts to political intentions. As JPMorgan CEO Dimon commented, Hassett may be more aggressive in lowering interest rates in the short term, while Warsh demonstrates a deeper policy understanding and a more stable stance.

However, it's worth noting that Warsh has recently adjusted his policy stance to align with Trump. In his November Wall Street Journal article, Warsh proposed a two-pronged approach: cutting interest rates while simultaneously significantly shrinking the Federal Reserve's balance sheet. This "interest rate cut + balance sheet reduction" combination is seen as a concession and compromise from Warsh's traditional hawkish stance: allowing interest rates to be lowered first, but withdrawing liquidity by reducing the size of the Fed's bond holdings to prevent inflation from rising. In contrast, Hassett did not propose a similar technical balancing act; he prefers a direct and drastic interest rate cut, believing it will immediately boost economic growth.

On curbing inflation, Warsh and Hassett held distinctly different views. Warsh bluntly criticized the Federal Reserve under Powell's leadership for "making unwise mistakes in dealing with inflation." He argued that "inflation is a choice," believing that the high inflation in recent years was largely due to policy errors by the Fed, not force majeure. Therefore, Warsh advocated that the new chairman must strictly adhere to the price stability target and prioritize controlling inflation.

Based on this philosophy, he opposed simply attributing economic overheating and a tight labor market to inflation, criticizing the Federal Reserve's past "dogma" of attributing inflation to excessive economic growth. Instead, Warsh believed that by increasing productivity and streamlining supply, higher growth and employment could be achieved without triggering inflation. Unlike Warsh, who emphasized the Federal Reserve's own responsibility, Hassett's stance on inflation was more politically charged.

The independence and political neutrality of the Federal Reserve are of particular concern. The differences in their views not only relate to their personal styles but will also profoundly impact the reputation and functional positioning of the Federal Reserve in the years to come.

As a former Federal Reserve official, Warsh deeply understands the value of central bank independence. During his 2017 bid for the chairmanship, he emphasized professional ethics and resigned due to dissatisfaction with policy direction, demonstrating a certain degree of independence. Even though he compromised somewhat to comply with Trump's demands for lower interest rates, Warsh is still considered a member of the financial elite, known for his relatively reserved and cautious style. Trump has privately expressed distrust of Warsh and other "Bush-era elites," worrying that Warsh is too independent and experienced to be fully controlled.

In contrast, Hassett has publicly argued that the Federal Reserve has become "politicized" and requires new leadership to align with the president's agenda. Even though Hassett has recently begun to emphasize that she will ensure the central bank's independence upon taking office, she essentially still advocates for monetary policy to more closely serve the goals of the ruling administration. This aligns closely with Trump's public demands: Trump has repeatedly stated that the next Federal Reserve chairman "should listen to me" and demanded that his opinion be sought before interest rate decisions are made.

In conclusion, Kevin Warsh, with his unique background and flexible campaign strategy, has successfully secured his place among the leading candidates for the 2025 Federal Reserve Chair. His experience in government, Wall Street, and academia adds significant weight to his resume, and his interactions with President Trump's campaign demonstrate a pragmatic approach. Compared to his main rival, Kevin Hassett, Warsh demonstrates stronger professional independence and experience in monetary policy, while Hassett is known for his loyalty and political acumen. Their differences on core economic policies reflect the different paths the Federal Reserve may face in the future: whether to uphold the independence and stability of a traditional central bank, or to cater to political demands and pursue easing and growth.

In mainstream media analysis and reporting, this contest between the "two Kevins" is not merely a personnel battle, but also a struggle over the Federal Reserve's independence and policy orientation. Regardless of who ultimately wins, American and global investors are closely watching how the winner of this tug-of-war will define the next chapter for the Federal Reserve.