Odd Lots - Lots More With Skanda Amarnath on the Risks of Kevin Warsh

Episode Date: January 30, 2026

Trump has announced that former Fed Governor Kevin Warsh is going to be his nominee to succeed Jerome Powell. The responses to the news are split among some interesting lines. People like Neil Dutta have been highly critical, while at the same time, the pick has earned praise from Jason Furman, who was the Chair of President Obama's Council of Economic Advisers. So who is Kevin Warsh? And why is this pick particularly controversial? On this episode, we talk with Skanda Amarnath, Executive Director of Employ America, who walks us through Warsh's history of commenting on and executing monetary policy. He argues that in addition to having gotten some big calls wrong (particularly in the years surrounding the GFC), Warsh has a history of aligning his policy views with partisan consideration. We also talk about the challenges Warsh will have establishing credibility within the FOMC, as well as challenges that may arise the next time the Fed has to step in during a period of crisis. Read more:Fed’s Musalem Says It Would Be ‘Unadvisable’ to Lower RatesCarney, Macklem Congratulate Warsh on Federal Reserve Nomination Only Bloomberg subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at  bloomberg.com/subscriptions/oddlots Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Bloomberg Audio Studios, Podcasts, Radio News. Oh, Joe, this is cutting. This is from Neil Duda, friend of the pod. Oh, yeah. All right. Read it out. Read it out. President Trump has picked everyone's least favorite candidate, Kevin Warsh, for the next Fed Reserve Chief. I tip my hat to Warsh, who has managed to get selected after being passed over time and again. That's a remarkable achievement for him. Joe, I want a T-shirt that says ruthless utility maximizer.

Black gold! Let's talk about losers. Who cares? I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the U.S. Skulls Unlimited. Ooh, what's the ticker for that? No, I think that like in a couple of years, the AI will do a really good job of making the outlaw. podcast. How do I get more popular and successful?

One day that person will have the mandate of heaven. We do have the perfect guest. You're listening to Lots More, where we catch up with friends about what's going on right now. Because even when Odd Lots is over, there's always lots more. And we really do have the perfect guest. I'm just going to say what I find interesting right now is that, you know, like Trump announces someone and you expect a bunch of like liberal. ninnies in the media to like shake their fists. It's like, oh, this isn't good. You know, it's like there's a lot of predictable response. But it is interesting to my mind. If you're someone like Neil, who is, I do not associate him with liberal media group think or anything

like that, as well as many others who are like, huh, interesting pick here. Well, I will say opinions kind of divided. So Mohamedal Arian tweeted earlier that he thinks Kevin's going to be great Fed chair and he's observed and this is a quote having observed and interacted with Kevin during his prior tenor as Fed governor in academia and as a fellow member of the group of 30 I believe he brings a strong mix of deep expertise broad experience and sharp communication skills so by the way Jason Furman too he tweeted Kevin Warsh is well above the bar on both substance and independence to be chair of the Federal Reserve the Senate should ask tough questions about his independent and President Trump should reduce the thread to it.

Hopefully, that will make it clear Warsh should be confirmed. So it is a mix on both sides. It is not dividing in obvious, easy ways. Anyway, Scanda, what's up? Glad to be part of this momentous day. It is a momentous day. I guess we see that. Yeah, Kevin Warsh is right now the successor in waiting if he gets confirmed by the Senate.

It is funny how he's part of this group of 30, which is a form of former central bankers, former finance ministers, some movers and shakers. So you see Muhammad El-Ery and Jason Furman, George Osborne, I believe. Mark Carney, certainly not exactly the most America-first kind of grouping, maybe more globalist in flavor, has definitely kind of rallied around Kevin Warsh because I think they've probably conversed with him a bunch of times and take him to be a very serious person. I myself am much more sympathetic to what our friend Neil has pointed out.

By the way, we are talking, of course, to longtime friend of the pod, Scanda. Amaranath, co-founder and executive of Employer America. So what do you see like, okay, so someone like Neil and someone like yourself and you have these reservations? Like what is the origin of some of these anxieties? I think there are a few different anxieties. And I think let's start with, this is obviously someone who served on the Fed before, right? He was a Fed governor.

So we have like a track record. We don't have to like rely on secondhand validation. We don't have to, if we didn't know anything by Kevin Wurston, I think probably it's probably putting a little more emphasis on what Jason Furman and Mohamed Alarian and those people are saying, and they seem like respectable people. Except he was Fed governor and he does have a pretty long body of work in terms of a public intellectual, giving remarks, being in the Wall Street Journal opinion pages. And the trouble is it kind of comes back to like, who do you want in a crisis, right?

So the Fed really tends to matter the most in periods of crisis. He was a Fed governor in the crisis, and he often touts it as some... We're talking about the great financial crisis. Yes, the 2008 financial crisis. If you go through what his views were through that whole period, what you will find is, this is someone who is very eager to tout how well the financial system was performing, even as it was descending into crisis in 2007 and eight, he would. was very eager to really upweigh the importance of inflation in the summer and fall of 2008

until Lehman failed. So this is someone clearly who had his eye on, I'd say the wrong ball at that time. Okay, mistakes happen. Like, people had different views. I don't think we should be like too precious about that specifically. And yet also the moment that sort of we came into 2009 and let's say the absolute worst of the financial distress may have been behind us, but we had historically high and right. unemployment, he basically said this was not really a big problem, not something the Fed should be

focused on, and that we actually should start to shift back towards focusing on, keeping interest rates more normal, not so low, I'm worried about inflation. And so he came with a lot of reasons why he thought inflation was going to explode, why QE was really bad, and that that would ultimately lead to first inflation, then maybe some version of asset price inflation, maybe bubbles, maybe it's backdoor fiscal policy. He came with a lot of different reasons at different times for why he really hated the fact that the Fed's balance sheet was so big. But one, those predictions weren't really true. I think they reflected a misunderstanding of what the Fed's balance sheet really does and is. And it's still like a big, it's a favorite hobby horse of his. But that's itself like he kind

of missed the whole financial crisis in a way, right? Like aside from like the absolute worst of it, everyone got on the same page in October 2008. But that's like kind of like not like, that's not a great badge of like, of honor that you actually figured out that you had to start to support the financial system at that time. I think that's the first dimension that probably is of concern. But let's say, like, okay, people have gone through various episodes and missed a lot of things. And you'd hope coming out of that, people kind of have learned something, express some humility. Okay, I miss this part of this problem, the scale of it, the duration of it, and I'll do better next time.

We haven't really heard that, but, okay, let's see those like missing me a culpice aside. The two things that are more concerning that come out of that, though, is we see now a growing pattern of both obsequiousness and partisanship in how he orientes his macro and monetary policy views. So let's fast forward to 2024, right, where we had for a while, obviously, there was a sense of like the Fed's going to cut rates, but are they going to cut rates soon enough, or are they going to wait longer because they want to see more progress on inflation? Kevin Warsh for most of that year, he was pretty clearly in the camp of the Fed is risking not keeping interest rates high enough for long enough to kill inflation.

But when do you think that his policy views changed? They've happened to change in November 2024, basically. And he basically did a big 180 on what were probably considered pretty hawkish views, but actually they turned doveish the moment the election changes. Now, obviously, like everyone does a version of inflecting their, policy views with some level of politics and partisanship, whether they can help it or not. I'm not here to say it's like anyone's immune. But there's a tendency, if you look through his track record, of basically worrying about

inflation and worrying about sort of fiscal excesses during periods when it's a Democrat that's in the White House. And then it tends to flip towards deregulation and productivity growth are going to be disinflationary. And that's why we can afford to keep rates lower when it's a Republican that's in the White House. I think that's been dialed up even further. And this last call it 18 to 24 months, where you've seen that sort of 180 take place. Yeah. And I think that kind of speaks to exactly what did he have to promise to President Trump to get the job? It's funny. You mentioned

writing op-eds in the Wall Street Journal. And this is also a dutta line. He says, and all he's done in the years since his time at the Fed is critique QE and the Fed itself, making a bunch of bad economic calls along the way and writing the same op-ed in the Wall Street Journal every year. So one thing I was reading, you know, I read some of those op-eds, but I also read a speech that Warsh made last year, and he was criticizing the Fed for being too dependent on data or focusing on data dependency, too much near-term forecasting. And it kind of, you know, it made me think, like, well, if you're not looking at the data, what are you going to be looking at? Do you have any sense of what he actually prioritizes when it comes to making policy?

Yeah, I mean, maybe it's vibes. Maybe it's presidential preferences. But I honestly, like, sort of half kidding there. But I think it's like, what do we have if we don't have data, right? What do we have if we don't have a language that you can talk about facts? Like, obviously, data has flaws. We all know that there's, like, limitations to what macroeconomic data releases can tell us, what various points of information tell us. We're all trying to triangulate around this like fuzzy reality of macroeconomics. But it's a useful language for being able to like get people from different policy preferences, different political orientations to get on something of the same page.

It's a way of saying, okay, this is a fact about the data. We can tell, say this is a reason why it's too high, it's too low, it's biased this way. You can have a discussion about it. But at least it's a way to make sure we're talking about something other than politics, something other than policy that's like outside of the ambit of the Fed. I think what you actually hear from Kevin Orsch on the data dependent side is pretty worrisome because it kind of speaks to a disinterest in being perceived as objective. And lack of interest in actually doing something that can broaden legitimacy around the Fed

so that people will understand, okay, the Fed made this decision because indicators moved in this direction or they think indicators are moving this direction. And at the same time, we obviously have a situation where, like, there's a lot of risk of eroding trust in the Fed when Trump has been saying that he wants his guy in who's going to do what he wants and that he really felt burned by picking Jerome Powell. So basically that Jerome Powell was not pliant enough to what Trump was looking for. I think that that just raises a lot of risks going forward. and just to bring it back to the issue of crises, the Fed has been such an important actor in periods of crisis and divided government, right?

When we think about 2008 and 2020, when periods when the White House was controlled by a Republican, and there was a pretty vociferous opposition from Congress in terms of, obviously, there was a Democratic House in 2020, and both chambers were a Democratic in 2008. How did you get to, like, policies that actually started to take up, address the scale of the crises in front of them. You got there because there was some agreement and trust that the Fed could be a reliable

kind of crisis broker of sorts. I think that's going to be a lot harder this time around because Kevin Morris is like track record. Obviously, there's a certain obsequiousness that kind of has been very obvious from how he's on these policy 180s. He goes from Hawk at one point. And then the moment Trump wins office, he starts to shift towards being more duffish. He did a version of this in 2017, though less exaggerated.

So that's something that, like, is concerning. Layer it onto his tenure as Fed Governor has this, like, features a lot of speeches in which he's, like, really going off script in terms of what he's talking about. He doesn't just talk about monetary policy or just financial regulation. He started to give kind of these, like, bigger concerns about, hey, I don't really like the way the trade policy is going under the Obama administration. I don't really like how, like, we risk going down the wrong path on broader regulatory policy. things that really shouldn't have been under his domain itself to focus on,

and yet he kind of beard into the political and probably was speaking to a more partisan audience at that time. I think everything you've seen since 2005-6 kind of speaks to someone who wants to talk to one side of the partisan aisle, but it may be very different in a crisis when you need relationships across this. The news doesn't stop on the weekends. Context changes constantly.

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It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. You know, regardless of what people thought about Bernanke or Paul, et cetera, both of them, you know, were reasonably well respected across both sides of the aisle, which probably was very helpful during the crisis. I have a question. I've never actually quite known the answer to this. But even going back to 2009, 2010, et cetera, like a lot of people really liked Warsh.

And you mentioned that he's in a select community of like some pretty like heavy hitters, et cetera. And I think Bernanke liked Worsh quite a bit, if I recall. What is the sort of like Warsh origin story of like how he got to be in the circles of some of the most elite and monetary policy minds? So he was one of the youngest people selected to be a Fed governor. And there was a lot of consternation even about whether he was qualified at that time. There's some some good background about how there were a lot of critics, former Fed vice chairman, people who served under Ronald Reagan, expressing reservations. It's about picking someone so young who had no real track record. He was like an investment banker at Morgan Stanley and technology media telecom for a brief period.

He's kind of known in these circles primarily. I don't know how much to ascribe to this, but I do think it matters that probably his father-in-law is one of the big donors to the Republican Party and has been a big donor to Trump, so Ron Laudere of Este Laudera fame. So there's like certain levels of connections that have mattered, I think. there's a pretty well-documented fight between Randy Quarles, who was the head of supervision appointed by Trump in his first term, and Kevin Warsh were fighting over a particular job in the Bush Treasury Secretary Office, the Treasury Department. So he's been around in those circles. I think he's mostly been conversed with, let's call people who are, like he was a visiting fellow at the

Hoover Institution, which is like an intellectual hub for obviously conservative, economic thought. but he's also mostly been speaking to a specific crowd, like the Walser Journal Abed page, has mostly been with those who are of his persuasion. He has managed to do a remarkable job of shape-shifting towards making sure he's heard well by President Trump. And so he has managed to kind of make that transition in a way that maybe other people have not. But that shape-shifting itself has always been with an orientation towards, I'm really speaking to a Republican audience.

And what I wonder about that is, if we run into any sort of situation where you're going to need the Fed to kind of put out a fire, or you're going to need some institution to play that role as it was the case in the CARES Act, or was the case around TARP or around any of the other sort of bailouts of 2008, how do you like muster that together when like this person has been kind of been pretty consistently partisan and ideological in some ways, ideological maybe more so when it's not Trump at the helm, But it's just something that comes very hard to trust. And we can't take that for granted in terms of macro and finance about how the Fed is supposed

to step in when there's a crisis. But the Fed steps in in the crisis when they get the backing from both Congress and the White House that may not exist. Just going back to things that Warsh has said previously. So we talked about he's been very critical of the Fed's balance sheet, expanded balance sheet and QE and things like that. assuming that he figures out a way to do what he wants at the Fed and somehow gets support of the Fed board or does something else, how dramatic could his tenure at the Fed actually be in terms of

monetary policy? Because I'm thinking, you know, there's been some chat or some suggestion that Warsh would like to radically redesign the way monetary policy, interest rates are actually implemented. Yeah, that's always been a bit fuzzy to me because he's been very eager to criticize, but the nature of the criticism has always had to continuously adapt to what I'd call somewhat failed predictions. First, it was that there were a lot of people who said QE is going to increase the money supply and mechanically increase inflation. And that was the case, people said this like 2009.

Didn't quite pan out that way. Then people kind of said, like, it's going to lead to asset price inflation slash bubbles. Like maybe there was asset price inflation, but there wasn't really like an obvious bubble that transpired from it. And then it's sort of that some of the criticisms shifted towards, well, it's actually doing something on fiscal policy. So I think you have to have a career in view of what you actually think the Fed balance sheet does. Like if you ask me, ordinary vanilla treasury QE is not really doing much. It's mostly an acid swap of two risk-free assets, which is a view actually that another person who were institution, John Cochran would probably abide by.

So there's not really any distorting effects that people are really, the way people are saying. And yet he sort of has made this a big bug bear, that this is like the big thing that needs to shift. It comes at a very awkward time because what's been happening is that money markets have been basically giving the signal that actually the balance sheet is getting to a place where if you try to run it down from here and run it down too abruptly, you might get more dysfunction. Kind of similar to what we saw in like September 2019. So we might get into a situation where repo rate spike because there's just not a lot of relative to the banking system and the financial system's needs. you do need to have some amount of liquidity available, and that amount of liquidity is meaningfully more than it was prior to the financial crisis. That's probably like one part regulation, one part supervision,

and one part bank risk management practices. But this stuff is kind of like actually hard to pin down how much of each. And so he's big, this is like big concern. I suspect he's probably going to have to swallow his pride a bit and be more supportive of like gradual balance sheet expansion during this period because money market conditions are basically signaling that things have tightened up quite a bit in terms of if you look at where the Fed funds rate or money market interest rates are relative to the interest that the Fed pays on reserves or the interest rate that the Fed pays for money market funds to the reverse repo facility, those have been converging, right?

Those are basically even those money market interest rates have been kept going up relative to those rates set by the Fed. And that kind of is also a sign that, like, yeah, you've got to have more malleability and it's not exactly the case that like, oh my god, this Fed balance sheet is like this big problem, or that it's something that if you lower the balance sheet, that's how you get lower interest rates. These views are all kind of incoherent, but I think that especially now that he might be in a position where he has to deal with those hard realities,

I suspect his views may be forced to change. It'll be interesting to see what happens. Let's just talk, you know, so we know Trump wants lower rates. Kevin Warsh has talked about we need lower rates, so there's alignment there. Other candidates who were like the sort of finalists also talking about that. So Christopher Waller, who I think, you know, many people would say,

perhaps has the best track record of the last five years of anyone having correctly identified the inflationary turn and then also recognizing when the inflationary turn was coming to an end. He also wants lower rates. So like, there were presumably no matter who was going to come in, was going to have this lower rates now view. That being said, you know, does the actual execution of lower rates in the short term, setting aside crisis, does it change at all the dynamics when he's just one of multiple voting members

if that message is coming from Kevin Warsh versus if it were coming from a Christopher Waller? I think it definitely matters because at least with Chris Waller, honestly, with all of the front runners outside of Warsh, I can point to a tangible example where that person supported the case for lower interest rates outside of a

very Trump-inflected electoral context. And I'm including even Kevin Hassett here. And so Rick Reeder, Chris Waller are people who have made the case for rate cuts at various times, even when Trump was not in office, even when Trump wasn't clamoring for lower interest rates. In the case of Kevin Hassett, he went on the record in October 24, I believe, basically defending the Fed's 50 basis point rate cut in September. Back when Kevin Warsh and Scott Bessent and Steve, Steve Myron were up in arms about the idea that the Fed could cut rates and thought it was the most politically motivated decision ever. So you get people who have actually pre-registered their views and are not a control ability to make judgments outside of that sort of presidential context will come with

more credibility. Because in the end, as you rightly point out, the FOMC, which is made up of seven Fed governors and a set of regional Fed presidents, they are not just presidential appointees, certainly not of this current president. And even those who were appointed. by the president in the previous administration, I think to the large extent, I'm talking about Michelle Bowman or Chris Waller or Jay Powell, have shown like a capacity for independent judgment and assessment. Will someone like Kevin Orsch be able to bring more people on board is going to be a real challenge, right? Can you be persuasive?

Can you be persuasive? And especially if he's someone who doesn't really take a lot of stock and data. Like one of the nice ways that you can be persuasive is being able to point to an indicator and saying, I think this is going to happen in this way. And if it does happen this way, you get more credibility in the next meeting to say, things are going the way I suspected, and therefore we really need to take policy in the direction I think is right. Like, that's kind of, the data has a way of, like, helping keep people accountable in discussions. Not always, but like it's better than nothing at all, or better than the substitute. And so I think regardless of who was going to be the Fed chair, there was going to be persuasive constraint, we're kind of seeing from the Supreme Court that Trump can't just fire everyone on the Fed.

that he wants. At least those are the tea leaves we're getting. And so you're going to have to work with the people who are already on the Fed, on the FOMC. And if that's the case, like, persuasive power matters. And like, what's the reason you're really like expressing this view? Are you expressing this view because you believe it or because you think it satisfies what the president wants? Unfortunately, over the course of the last, I'd say, two decades, Kevin Warsh's views kind of have like a strong like political correlation to them. Look, everyone's got some political correlation in their views, I suspect. But his, uh, his, more predominantly. And especially if he wasn't making arguments rooted primarily in data,

I think he may find it harder to persuade his fellow colleagues and there will be a high-level suspicion about just how, what exactly are the true intentions behind his agenda? Just going back to the speech that Warsh made last year, he talked about the need for regime change at the Fed. And he said that would involve, quote, breaking some heads. So I imagine the first FOMC meeting might be a little awkward. He's got to come in and the first thing he says, he's like, guys, I didn't mean that literally. Like, he's like, you know, he's got to come in and said, I wrote that, but I don't want you guys to mean I said it literally. He's got to say that. Real quickly, Skonda, if you were at that

meeting, what would be the one question or the first question that you asked Mr. Warsh? Oh, I think it would be good a sense of just like what he's, what he even thinks about where interest rates should be right now? Because I think part of what he does. He talks a lot about Fed policy in the abstract, the need for regime change, we need reform, need more credibility, more fewer mandates or something along those lines. It's all kind of vague and can kind of sound substantive, but I kind of think it's a little substance-free because it ends up blurring exactly what he thinks about the macro economy right now.

Like inflation right now is about a percentage point above the Fed's target. Now, that might be freezes that are temporary. That might be freezes that are more persistent. It'd be good to understand what he thinks will happen. Why? I mean, we don't really know much about that beyond just thinking like, okay, this person's probably going to be for lowering rates because he got the job from Trump. The reasoning seems very light at this point.

I think it's a, there's a good reason to be devilish and maybe good reasons to be hawkish. But can he identify those? Like, as someone who would be on the FMC or Fed Stafford. Like, we're actually, there's more of a black box here because maybe you could have told yourself a story of how he was actually a very hawkish person, especially 2009 and 2010 and some of his Wall Street Journal columns afterwards. But especially ever since we've had Trump in office, like his views have definitely shifted more dovishly. And you just wonder like how much, what is he putting a high weight on? And if that's something that can be trusted, ultimately,

he's going to have to figure out how to build up more persuasive power and trust among the committee to actually be an effective head chair. I think it'll be remained to be seen. Scanda, we're going to let you go, but this is not going to be the last time we talk about Kevin Warsh, with you and many others. So I appreciate your time. Thanks. Thanks for having me. Lots more is produced by Dashel Bennett, Carmen Rodriguez, and Kail Brooks. Please rate, review, and subscribe to Oddlots and Lotsmore on your favorite podcast platforms. And for even more beyond lots more, go to Bloomberg.com slash oddlots and chat with fellow listeners in our Discord.org.g.g. slash hotlines. And don't forget that Bloomberg subscribers can listen to all of our podcast, absolutely ad-free.

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