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PALO ALTO, California — You might expect Kevin Warsh’s colleagues at Stanford University’s Hoover Institution to be elated for him as he prepares to take over as chair of the Federal Reserve.
Some of them are feeling a different sentiment: pity.
“Kevin Warsh is the dog who caught the car,” said John Cochrane, a senior fellow at Hoover, Warsh’s intellectual home and soon-to-be-former employer. “I say that with great affection and sympathy.”
Cochrane helps organize the institution’s annual monetary conference, where this year, right-of-center economists, former Fed staffers and others spent the day dissecting potential threats to the central bank’s political independence — a sobering reminder of all the ways Warsh’s new job might stop being fun pretty quickly.
Is the Fed insulated from political pressures? Will the federal debt get so large that the central bank eventually has no choice but to set interest rates in ways that minimize the government’s interest burden? Did the recent spike in inflation result in a dent to the central bank's credibility?
These ideas, which a younger Warsh wrestled with as risks to the Fed 16 years ago, are all now highly pressing matters that he will face in the job he has wanted for many years. Many of these concerns are far fresher than they were when Warsh meditated on them, as inflation and government debt and political threats to the central bank have ballooned all at once.
And so I found, as Warsh ascends to the Fed’s top job, that the free-market scholars who make up the Hoover community are watching the task he faces with real anxiety.
And it goes beyond President Donald Trump. Cochrane said Trump’s threats to the central bank put the Fed’s autonomy “back on the radar screen,” but “it’s been simmering.”
In fact, he sees the growing U.S. debt as the bigger danger to the Fed’s long-term independence than Trump, whose attacks “seem to be, if anything, counterproductive” for the president. After all, U.S. central bankers have continued to have flexibility to make their own policy decisions, but the debt trajectory of the U.S. is on a steep climb, with no sign that the government plans to change course.
It’s true that, so far, the president’s legal threats against the Fed have worked against him. Outgoing Fed chief Jerome Powell is staying in his board seat as a “low-profile” regular governor after his chairmanship ends May 15, a move that will deny Trump another appointee and mean fewer potentially like-minded allies for Warsh on the interest rate committee. Trump has not been shy about his single-minded goal for the Fed: Dramatically lower borrowing costs.
But trying to pursue the rate cuts he has demanded wouldn’t be an easy task for Warsh, even with a new Trump appointee in Powell’s seat. Talk among the Hoover conference attendees often drifted to an inevitable question: How long will it take for the president to turn on his new Fed chief?
Powell, during his press conference last week, cited fears that the president might try additional tactics to undermine the Fed’s ability to set interest rates free from political interference. Trump already attempted to fire Fed board member Lisa Cook on unproven allegations of mortgage fraud, but the Supreme Court has allowed her to remain in her job while the case is litigated.
Warsh will have to figure out how to guide the institution through this period, including how much he wants to bend to Trump’s efforts to reshape the Fed.
David Wilcox, an economist at the Peterson Institute for International Economics and Bloomberg Economics, said at the Hoover event that it was a low-probability, high-impact risk that Trump might try to use a majority on the Fed board to weed out some regional presidents — who have a vote on interest rates but aren’t presidentially appointed. But he added that the possibility was not “idle theorizing.”
(People within the Trump administration have previously dismissed that notion to me, and it would require the compliance of Warsh and probably new people in both the Powell and Cook seats.)
Former St. Louis Fed President Jim Bullard at one point asked from the audience about the prospect of making Fed officials removable through impeachment like judges. In response, Wilcox suggested that design might not be constitutional; apparently, this idea was debated in Congress in 1935.
But, consistent with the kind of central bank critiques that are characteristic of Hoover, the discussion also focused on the ways that the Fed has made its own life harder, including through its delayed reaction to the inflation spike that began in 2021.
On one panel, Marvin Barth, founder of research firm Thematic Markets, said the “current political assault on the Fed” was a side effect of its own policy failures.
In that sense, the conference was a useful reflection of the world Warsh is coming from. Though he served as a Fed governor from 2006 to 2011, he has spent the last 15 years calling for reforms at the central bank.
The incoming chair will no doubt pursue changes to the Fed’s tools. In the meantime, he will have to navigate the current period where the war in Iran has increased the odds of both higher inflation and slower growth. But like Powell before him, Warsh might ultimately find his legacy to be defined by his relationship with Trump.
When I asked Cochrane to explain the extensive focus on independence at the yearly summit, he answered: “Well, duh.”
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