Dear Kevin: I’d say I feel bad for you, but I don’t. Not even a little bit.
When he took the reins from Jerome Powell in May, Kevin Warsh knew what he was getting into. Just like the rest of us, Warsh witnessed the 10-month-long, White House pressure campaign aimed at compelling the Fed to cut rates, an effort which culminated in a threat to criminally indict Powell, purportedly for lying to Congress about cost overruns for renovations at the Eccles building.
The mere fact that Warsh accepted the nomination was proof he didn’t deserve the benefit of the doubt from market participants. Because no one with any integrity would dignify Trump’s overt attempts to commandeer the nation’s monetary policy, particularly given that the crusade’s ongoing.
Although Jeanine Pirro dropped the Justice Department’s investigation into Powell, that was only to clear the way for Warsh’s Senate confirmation. Trump might very well reopen the probe. And his witch hunt against Lisa Cook persists.
Indeed, Powell cited the clear and present threat to Fed independence while explaining his decision to remain on the board after his term as chair expired. And as I was at pains to explain in June, the Supreme Court’s narrow ruling in the Cook case by no means settled the question of whether Trump can ultimately fire Fed board members.
Warsh is no idiot. He understands all of that. But he took the job anyway. What does that tell you? It should tell you that, at the very least, he conveyed a willingness to play ball (i.e., cut rates or avoid raising them) when and where possible as a condition for getting the nod. Reports that Trump and Warsh spoke on the phone at least three times during the latter’s first three months in the big seat testify to the peril.
On Friday, in a wild escalation, Trump delivered a public ultimatum to Warsh: Cut rates or the US will stop trading with countries that run a surplus with America.
It’s “very simple,” Trump said, while boasting about the latest jobs numbers. “We should have the lowest rate of any country in the world.” Other countries wouldn’t be “considered financially elite without the US agreeing to allow them their big surpluses,” he went on. Then, in all-caps: “LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.”
Taking a page out of his 2018 Fed derision playbook, Trump suggested an FOMC that doesn’t cut rates is a Committee at odds with the national interest. “BE PATRIOTS for a change,” he told the Fed. “High interest rates put the USA at a very unfair disadvantage, and I won’t allow that to happen!”
I’m sorry, Kevin. Except I’m not.
Sounds like Trump has his new “my Kevin”.
Trump’s policies are inherently inflation-stoking. Tariff war, Iran war, AI war, immigration war, huge fiscal stimulus, higher uncertainty, etc. So either a) the Fed raises rates enough to control inflation, or b) the market prices in more inflation, or c) the government suppresses the market (rate control), or d) a recession solves the inflation problem. Maybe e) the government manipulates inflation data cleverly enough to fool the market, but that seems very unlikely.
I commented on an H note weeks ago that it appeared to me that all of the finance media was desperately playing along assuming “Warsh>Credible Hawkish” shining knight in independent armor, hoping that the Fed remains “independent” despite the obvious authoritarian creep. It will be fun to see if Bloomberg and CNBC are still talking about the hikes coming in September… Trump wants what he wants and is as wrong today as he was a year and years ago. I recall Powell was trading his rates book while being Fed Chair. I can only imagine what Bessent’s private book looks like. Another reason I’m currently only long convexity both left and right. The Fed hikes math is illegible… unless you assume Warsh does what he is told, like a good little wannabe billionaire.
https://www.politico.com/news/2021/09/22/powell-fed-ethics-rules-stocks-513672
And speaking of stupid things Trump could do, his firing Bessent is a 50-50 bet.
i’m suprised there isn’t an executive order to cut the fed rate.
Well Warsh should be raising interest rates into: AI Capex, Japan carry fail, tarrifs, national debt and war. Could this be a play by Trump/Warsh. Trump often starts negotiating with the worst deal then backs down. I think Warsh will hold and trump will back off.
“no one with any integrity would dignify Trump’s overt attempts to commandeer the nation’s monetary policy…”?
Indeed, no one with any integrity (and intelligence and common sense) would go to work as a toady to the man in any capacity, except to sell their soul in a devil’s bargain to further their own perceived self interest. Even then, it should be obvious that sooner or later the Trumpfather will turn on you.
It will get worse for Warsh. Perhaps unimaginably bad
Can’t be sorry for the guy even then. He knew what the deal was and accepted it anyway.
I wonder who’s going to go first, Bessent or Pistol Pete.
My gut tells me neither, but if I had to pick one, it’s Pete.
That’s a nice, editorially-neutral way of putting it. Unburdened by obligations to neutrality, I would go a lot farther…
Trump learned a lot during his first term. The biggest lesson may well have been the importance of appointing loyalists to powerful positions. When the rubber hit the road after his 2020 election loss, most of the people in a position to help him retain power opted instead to stay loyal to their oath (or the constitution, or America, or democracy, or their desire to avoid jail time or whatever). What he needed was people who would follow orders.
In his second term, he has only appointed loyalists. That has back-fired on him plenty of times, but even then, he’s not fired them exactly; rather, he gives them a face-saving out as a reward for their loyalty. Mike Waltz gets to be Ambassador to the UN. Even Kristi Noem, who was a goddamn train-wreck of a DHS Secretary, didn’t get fired exactly. She’s now the “Special Envoy for the Shield of the Americas,” whatever that is.
And of all the first term disloyal, the one that had to rankle the most was Jerome Powell. Trump learned a lot of lessons from Powell. Powell refused to follow orders in under a year. His profound disloyalty was confirmed when Biden reappointed him. And above all, Trump learned that the Federal Reserve Board Chair is the one person he can’t fire.
In a way, Bessent did yeoman’s work taking charge of the selection process so at least we don’t have, I dunno, Fed Chair Bartiromo or something. Warsh may well have been the best we could hope for.
The thing is, there’s no way–none, zero, zilch–that Trump appointed Warsh without first being 100% convinced of his loyalty. When Keven was behind closed doors with Donald, he said what he had to say to get the job. I’m sure Bessent coached him well in advance. But whatever was said, Trump fully believed that Warsh would be loyal to Trump. Not to his oath, not to the welfare of Americans, not to maximizing economic outcomes for the United States. To Trump, first, last and only.
I am hopeful that it is some version of WMD’s comments, but with a small twist. The USA could do so much worse than Secretary Bessent and Chair Warsh. So much. TBH, considering those two knew what they were getting into, I view it as a minor miracle that either of them accepted their positions. Yes, I know, they have egos and, for a finance professional and an economist, those are the two career-defining roles. Still, I very much hope that both of them somehow find a way to placate Mr. Trump while preserving their jobs. Perhaps Chair Warsh found some way in the private meetings to assuage the President while still still maintaining some credibility. I hope so for it really can get so much worse.
If you don’t take action to harm the country in the long run, dammit, I will!
This. This right here. This wins today’s comments.
Yes. My first thought upon reading the story was that Trump was threatening to declare war against his own economy. He wants what he wants or he is going to flip-over the Monopoly board — much like a child — and storm-out of the room. According to AI (Gemini), the U.S. currently runs a trade deficit with over 100 countries. The top six include: Mexico, Vietnam, Taiwan, China, South Korea, and the European Union. Add in our already overheated trade war with Canada and there simply is not much left.
He dropped this particular bombshell on a Friday ahead of Labor Day weekend. The markets were down, but the combination of shock, timing, and disbelief probably kept them from falling further. Combined with the Japanese rates story, the markets should have moved much more today, no?
All of this loyalty to President Trump rests on a foundation of cynicism. Loyalty has its utility. I am confident that when fidelity to the Constitution or the American people better serves the sycophants’ interests, they will “rise” to the occasion. Such is the flexibility of cynicism. I find it impossible to game cynicism because I believe we have not yet plumbed its depths. I’m beginning to wonder whether we ever will.
I hear sounds from the oval office, Kevin Hassett pleading “put me in coach”.
Seems like he’s always standing under a tree on the White House lawn, and never in the Oval Office.
I’m sorry for everyone in the US. They’re being led by a madman, and no one is going to save them.
John, got a spare room to rent?
Amen, succinctly put.
Is that Howard Lutnick who is prompting Trump from behind the scenes?
Well, at least it’s not the 1970s again: