President Trump’s nominee to succeed Jerome Powell as chair of the U.S. Federal Reserve “isn’t squarely hawkish or dovish – he’s signaling a hybrid stance,” one observer tells Mainebiz.
When it comes to monetary policy, Federal Reserve Chair nominee Kevin Warsh is a tough nut to crack in the eyes of some Maine Fed watchers.
Warsh, a visiting economics fellow and lecturer at the Stanford Graduate School of Business and former economic advisor to President George W. Bush, is President Donald Trump's pick to succeed Jerome Powell in May as head of the U.S. central bank.
“He certainly wants to cut rates, I’ve been watching him for a long time,” Trump said when unveiling the choice last week.
Repeatedly lashing out at Powell, 72, as “incompetent” and “crooked” for not being aggressive enough in trimming borrowing costs, Trump is banking on Warsh to take a more heavy-handed approach.
‘Hybrid stance’
Warsh, 55, served on the Fed’s Board of Governors from 2006 to 2011 and is generally seen as a safe pair of hands despite White House input. But Fed watchers aren’t yet sure what to expect from Warsh on interest rates. The Fed last cut rates in December.
“Warsh isn’t squarely hawkish or dovish — he’s signaling a hybrid stance,” said Oak McCoy, an economics professor at the University of New England’s College of Business.
“He’s dovish in that he’s called for lower interest rates, a shift from his earlier views,” he notes. “But he’s also hawkish, having advocated for shrinking the Fed’s balance sheet to fight inflation — what we call quantitative tightening.”
‘Hit the ground running’
Despite those mixed signals, Maine bank CEOs are bullish on the nomination going through.
“Kevin Warsh is an excellent pick for Federal Reserve Board chair,” said Andrew Silsby, president and CEO of Augusta-based Kennebec Savings Bank.
“His prior experience on the board will allow him to hit the ground running without the steep learning curve that a pick without that prior experience would have,” he added. “The economy is at a pivotal and transitional point right now and why a shorter learning curve is imperative.”
Silsby also believes that Warsh will maintain the central bank’s independence from political pressures.
“Based on his experience and skills, I predict an easy confirmation in the Senate, despite some of the political voices that plan to use the confirmation for political leverage,” Silsby said. “It would be hard to make any real arguments against this nominee with his experience.”
David Libby, president and CEO of Scarborough-based Town & Country Federal Credit Union, said his institution plans to follow the confirmation process and policy direction closely.
“The role of the Federal Reserve is critically important to economic stability, and we respect the independence and responsibility that comes with that position,” Libby said.
Vetting timeline
The Senate Banking Committee is set to vet Warsh during a March confirmation hearing and vote, followed by a vote by the full Senate the following month.
Should Warsh be confirmed as Fed chair, he would hold just one of 12 votes on the Federal Open Markets Committee.
“Markets will watch closely not just what Warsh says, but how he navigates the internal dynamics of the Fed,” UNE’s McCoy said. “Does he align with Powell’s consensus-driven style or does he push for a more assertive directional change in policy?”
In more ways than one, it remains to be seen what it sounds like when doves — or hawks — cry in the U.S. central bank’s next chapter.
