Kevin Warsh may look the part of Donald Trump's central banker, but securing the votes to deliver the rate cuts the president wants will be far harder than winning the nomination itself.
Trump has embraced Warsh as a "central casting" choice for the Federal Reserve chair position, and on the surface, the selection seems tailor-made for a president obsessed with monetary policy. Warsh's intellectual framework for lowering borrowing costs aligns with Trump's economic priorities, and his track record shows a willingness to challenge conventional Fed wisdom. The problem is that running a 12-member policy committee is not the same as governing alone.
Warsh's core argument echoes a playbook from Alan Greenspan's era in the 1990s. Just as Greenspan believed the productivity boom from information technology created room to keep rates low without igniting inflation, Warsh contends that artificial intelligence will deliver similar benefits today. Lower borrowing costs, he suggests, can coexist with stable prices because AI-driven productivity will allow businesses to produce more with fewer resources or raise wages without raising prices.
The comparison falls apart on closer inspection. Greenspan operated in a vastly different economic landscape. Globalization was deepening, which kept import prices down. Immigration was flowing freely, which eased wage pressures. The Clinton administration's fiscal discipline had produced a budget surplus and steadily declining federal debt. None of those conditions exist now.
Trump's tariffs are closing the U.S. market and raising costs across the board. Aggressive deportation policies are shrinking the labor supply. The federal deficit sits near 6 percent of GDP, and national debt has more than doubled as a share of economic output since the Clinton era. Inflation jumped above 3 percent last month, a stark contrast to the sub-2 percent inflation of the late 1990s.
The AI productivity story itself remains unproven. While companies are pouring billions into data centers and AI development, that spending is driving up demand for electricity, semiconductors, and other inputs. Actual productivity gains at the business level have yet to materialize in the economic data. What we see now is asset-price inflation fueling consumer demand, not broad-based efficiency gains.
Even if the productivity boom eventually arrives, it will not necessarily demand lower rates. Faster economic growth could instead increase demand for investment capital, pushing rates upward. Warsh may remember how the Greenspan era ended: the Fed started raising rates in 1999 and 2000 when inflation began ticking up and policymakers panicked about the dot-com bubble.
The math on the policy committee poses Trump's real challenge. Warsh would give him one more vote, but he needs seven votes to move policy his way. Trump has two other appointees on the board and could potentially count Stephen Miran, his former chief economic advisor, who has floated the idea of making Fed governors "subject to at-will removal" by the president. That leaves the president short by at least three votes, and probably more.
The courts have shown reluctance to let Trump fire Fed governors without cause. The recent reappointment of all five regional Federal Reserve bank presidents without Trump's blessing suggests the institution still has backbone. The opportunity to reshape the committee through attrition and strategic firings may have already passed.
Trump's fantasy of a central bank that cuts rates on command will almost certainly remain just that. The Federal Reserve's independent structure, staffed by governors with their own convictions about price stability and financial system health, stands in the way. Warsh may be Trump's man, but he will not be Trump's puppet.
Author James Rodriguez: "The Fed is not a political prize to be claimed by the sitting president, no matter how much Trump wants to believe otherwise."
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