The next Fed chair

Katie Martin (0:01)

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Pushkin. You know what? You win some, you lose some. The other day, on this very podcast, we laid out an argument that the super-soreaway clamor for gold and silver was a speculative frenzy doomed to failure. Well, tick, we've had a big reality check there. But then after that, we kinda said we thought maybe Scott Besson, the US Treasury Secretary, would be the next chair of the country's central bank. Wrong. Straight after we said that, Kevin Warsh got the nomination. But hey, look, one out of two ain't bad, and I don't think listeners are looking for perfection, right? Email to complain if you are. robert.armstrongatft.com Anyway, today on the show, a little bit on the president's Kevin of Choice. This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at FT Towers in London, finally done with boring, snoring, dry January. And I'm joined through the magic of the internet by Robert Armstrong, senior executive vice president of the Unhedged newsletter in New York City, and regrettably, seemingly ruled out early from the job of chair of the Federal Reserve. Rob, I think we now know why you were ruled out, because Kevin Warsh, according to Donald Trump, is, and I quote, central casting. Indeed, our colleague Chris Giles says that Warsh was passed over for the job in Trump's first presidency because back then, he was too young and too good looking. So I think this explains it, right?

Robert Armstrong (2:11)

Katie, we all have our crosses to bear, and mine is, mine is devastating good looks.

Katie Martin (2:20)

But you, but also, I know we've spoken about this on the show before, Trump likes people with great hair.

Robert Armstrong (2:28)

Yeah, that's not my strength, I'll admit.

Katie Martin (2:31)

That is not your strength, but Kevin Warsh does have central casting hair.

Robert Armstrong (2:35)

Unbelievable hair, rich, full, lustrous hair.

Katie Martin (2:40)

Yes. I would also point out that apparently in 2017, reportedly, Trump did not reappoint Janet Yellen for the role because she was too short. And I, as you know, I'm all of 5'2, so I think all in all, this is me and you both ruled out for FEDGIA. So Kevin Warsh, it was going to be one of the Kevins, people thought, and this is the Kevin of choice. Markets kinda like him. How do we know that and why?

Robert Armstrong (3:10)

Well, we know it because neither short-term interest rates nor the dollar weakened on the announcement, which if it had been the other Kevin, Kevin Hassett, we might have anticipated some weakness, suggesting a FED that is fully in the thrall of the president and willing to cut rates and loosen monetary policy willy-nilly.

Katie Martin (3:38)

Yeah. So we got the news that it was going to be Kevin Warsh. And it's not like stocks and bonds and the currency were all like, hooray! And there was this like massive jump in asset prices and the markets were like cheering. People were throwing streamers out of their windows and having parties and saying, hooray, it's Kevin Warsh.

Robert Armstrong (3:54)

But nothing bad happened.

Katie Martin (3:55)

Nothing bad happened. And that is these days a win.

Robert Armstrong (4:00)

Yeah, I would say that's right. And of course, the interesting thing about Mr. Warsh is you can see in him what you want to see because he holds two views about monetary policy that on the surface, at least, point in opposite directions. He has been vocal in the last year or two, that interest rates, the federal funds rate can be lower. Now, there's a whole debate about whether he's just auditioning for the job when he says that, and is he a hypocrite and a fake, and we can talk about all that. But that's one view that recently he's firmly espoused. His other view that he's been espousing for decades, is that the Federal Reserve's balance sheet, which is big because of quantitative easing or bond buying, should shrink. And that's a tight money view. So this guy both has a loose money view and a tight money view. So you can totally Rorschach on him and see whatever image you want to in a certain way.

Katie Martin (5:14)

Yeah. So there's that, right? He kind of calls sort of for opposite things at the same time. But there is a large body of criticism of Kevin Warsh saying, and here I'm looking at the words in the New York Times from Katherine Rampel, who says that over time, Warsh has seemed more interested in slamming the breaks on the economy when a Democrat is in the White House than when a Republican is. So there is a concern out there that Warsh is a bit of a political beast, that he is keener on raising interest rates when there's a Democrat in the White House. And now that it's someone who appears to be more closely aligned with his broader political views, is happy to run the taps a little bit hot. I guess from what you've been writing in your newsletter over the past few days, you kind of disagree slightly on how important that is, right?