Joe Weisenthal (2:01)

I'm just gonna 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 fist. 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 to hear 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.

Tracy Alloway (2:30)

Well, I will say, opinions kind of divided. Yeah. So Mohammed El Erian tweeted earlier that he thinks Kevin's going to be a great Fed chair. And he's observed, and this is a quote, having observed and interacted with Kevin during his prior tenure as Fed chair, 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.

Joe Weisenthal (2:58)

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 threat to it. Hopefully that will make it clear Worsh should be confirmed. So it is a mix on both sides. It is not dividing in obvious, easy ways. Anyway, Skanda, what's up?

Skanda Amarnath (3:22)

Glad to be part of this momentous day.

Joe Weisenthal (3:24)

It is a moment, I guess we.

Skanda Amarnath (3:25)

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, and movers and shakers. So you see Mohamed El Erian, 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.

Joe Weisenthal (4:05)

By the way, we are talking, of course, to longtime friend of the pod, Skanda Amarnath, co founder and executive of Employ America. So when 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?

Skanda Amarnath (4:22)

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 about Kevin Worsten. I think probably, it's probably worth putting a little more emphasis on what Jason Furman and Mohamed El Erian 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 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.

Joe Weisenthal (5:10)

We'Re talking about the Great financial qualified purpose.

Skanda Amarnath (5:13)

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 8. He was very eager to really upweight the importance of inflation in the summer and fall of 2008 until Lehman failed. So this is uncle who had his eye on, I'd say, the wrong ball at that time. Okay, mistakes happen. People had different views. I don't think we should be too precious about that specifically. And yet also the moment that 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 rising 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 up 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 reflect 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 itself, he kind of missed the whole financial crisis in a way, right? Aside from the absolute worst of it. Everyone got on the same page in October 2008. But that's kind of not a great badge of honor that you actually figured out that you had to sort of support the financial system at that time. I think that's the first dimension that probably is of concern. But let's say, 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, expressed some humility. Okay, I missed 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 leave those missing mea culpas 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 orients his macro and monetary policy views. Let's Fast forward to 2024 where we had for a while, obviously there was a sense of 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 Wash 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 tapped the change in November 2024, basically, and he basically did a big 180 on what were probably considered pretty hawkish views, but actually they turned dovish the moment the election changes. Now, obviously everyone does a version of inflecting their policy views with some level of politics and partisanship, whether they can help it or not. Not here to say it's like anyone's immune, but there is 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, 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. And I think that kind of speaks to exactly what did he have to promise to President Trump to get the job?

Tracy Alloway (9:08)

It's funny you mentioned writing op EDS in the Wall Street Journal. And this is also a da da 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 we have any sense of what he actually prioritizes when it comes to making policy?

Skanda Amarnath (9:57)

Yeah, I mean, maybe it's vibes Maybe it's presidential preferences, but obviously, 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 were all trying to triangulate around this fuzzy reality of macroeconomics. But it's a useful language for being able to 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 say this is the 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 outside of the ambit of the Fed. I think what you actually hear from Kevin Warshaw, the data dependent side, is pretty worrisome because it speaks to a disinterest and being perceived as objective, a 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. At the same time, you obviously have a situation where 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. 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 Democratic in 2008, how did you get to policies that actually started to 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 crisis broker of sorts. I think that's going to be a lot harder this time around because Kevin Morris's track record, obviously there's a certain obsequiousness that has been very obvious from how he's done these policy 180s. He goes from hawk at one point and then the moment Trump wins office he starts to shift towards being more dovish. He did a version of this in 2017, though less exaggerated, so that's something that is concerning. Layer it onto his tenure as Fed governor has this features a lot of speeches in which he's 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 these 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 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 veered into the political and probably was speaking to a more partisan audience at that time. I think everything you've seen since 2005 six 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 the spectrum.

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Joe Weisenthal (15:05)

You know, regardless of what people thought about Bernanke or Powell, etc. 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 some pretty heavy hitters, et cetera. And I think Bernanke liked Warsh quite a bit, if I recall. What is the sort of Warsh origin story of how he got to be in the circles of some of the most elite monetary policy minds?

Skanda Amarnath (15:46)

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 good background about how there were a lot of critics, former Fed vice chairman, people who served under Ronald Reagan, expressing reservations about picking someone so young who was. 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. Like, I don't know how much to ascribe to this, I'm not. But I do think, like 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 Lauderre of Estee Lauder 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 Wall Street Journal op ed 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 muster that together when this person has 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 becomes very hard to trust and we can't take that for granted in terms of like macro and finance, about how the Fed is supposed to step in when there's a crisis, but like the Fed steps in in the crisis when they get the backing from both Congress and the White House that may not exist.

Tracy Alloway (18:13)

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 there's been some chat or some suggestion that Warsh would like to radically redesign the way monetary policy interest rates are actually implemented.

Skanda Amarnath (18:53)

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 that people said this like 2009, 10 didn't quite pan out that way. Then people said it's going to lead to asset price inflation bubbles. Maybe there was asset price inflation, but there wasn't really an obvious bubble that transpired from it. And then it's sort of. 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. If you ask me, ordinary vanilla Treasury QE is not really doing much. It's mostly an asset swap of two risk free assets, which is a view actually that another person at Hoover institutions, John Cochrane, 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 the big bugbear, 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 similar to what we saw in September 2019. We might get into a situation where repo rates 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 actually hard to pin down how much of each. And so he's made this his big concern. I suspect he's probably going to have to swallow his pride a bit and be more supportive of 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. Those money market interest rates have been kept going up relative to those, but rates set by the Fed. And that kind of is also a sign that, like, yeah, you're going to have 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, it's something that if you, 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.

Joe Weisenthal (21:31)

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 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.

Skanda Amarnath (22:25)

A Christopher Waller, I think it definitely matters. Because at least with Chris Waller, honestly with all of the frontrunners outside of Horsh, 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. 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 2024, I believe, basically defending the Fed's 50 basis point rate cut in September, back when Kevin Warsh and Scott Besant and 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 can show an 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 a large extent, I'm talking about Michele Bowman or Chris Waller or Jay Powell, have shown a capacity for independent judgment and assessment. Will someone like Kevin Warsh be able to bring more people on board is going to be a real challenge, right? Can he be persuasive? Can he be persuasive? And especially if he's someone who doesn't really take a lot of stock in data, 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, then if it does happen this way, you get more credibility in the next meeting to say I've things are going the way I suspected and therefore we really need to take policy in the direction I think is right. Data has a way of helping keep people accountable in discussions not always, but it's better than nothing at all or better than the substitute. I think regardless of who was going to be the Fed chair, there was going to be persuasive constraint. We're 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, persuasive power matters. And what's the reason you're really 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 a strong political correlation to them. Look, everyone's got some political correlation in their views, I suspect, but 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 of suspicion about just how. What exactly are the true intentions behind his agenda?

Tracy Alloway (25:26)

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, a little awkward.

Joe Weisenthal (25:43)

He's gotta come in and the first thing he says is he's like, guys, I didn't mean that literally. Like, he's like, you know, he's gotta come in and say, I wrote that, but I don't want you guys to mean I said it literally.

Skanda Amarnath (25:51)

He's gotta say that real quickly.

Tracy Alloway (25:53)

Skanda, if you were at that meeting, what would be the one question or the first question that you asked Mr. Warship?

Skanda Amarnath (26:03)

I think it would be good to get a sense of just what he even thinks about where interest rates should be right now. Because I think part of what he doesn't quite. He talks a lot about Fed policy in the abstract, the need for regime change. We need reform, we need more credibility, 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. 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? We don't really know much about that beyond just thinking, 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 there's good reasons to be dubious. There's maybe good reasons to be hawkish, but can he identify those as a someone who would be on the FOMC or a Fed staffer? 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 in 2009 and 2010 and some of his Wall Street Journal columns afterwards. But especially ever since we've had Trump in office, his views have definitely shifted more dovishly and you just wonder 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 Fed Chair. I think that remains to be seen.

Joe Weisenthal (27:34)

Skanda, 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.

Skanda Amarnath (27:43)

Thanks. Thanks for having me.

Joe Weisenthal (27:45)

Lots More is produced by Dashiell Bennett, Kerman Rodriguez and Cale Brooks.

Tracy Alloway (27:50)

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Joe Weisenthal (27:55)

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Tracy Alloway (28:03)

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