Investor argues Fed nominee Kevin Warsh won’t remain a policy hawk

Stanley Druckenmiller, a billionaire investor and longtime mentor of Donald Trump’s Federal Reserve chair nominee, pushed back on Kevin Warsh’s reputation as a hardliner on interest rates, noting he isn’t always hawkish on monetary policy.

He dismissed the idea that Warsh is rigid on rates, saying, “I’ve seen him go both ways,” after President Trump nominated Warsh to succeed Jerome Powell. Warsh’s years at the Fed shaped his hawkish profile, particularly after transcripts revealed that he had emphasized inflation risks just days before Lehman Brothers went under in 2008.

Druckenmiller said that Warsh is flexible about Greenspan’s methods

President Trump has been outspoken about demands for rate cuts, frequently criticizing Chair Jerome Powell for his refusal to cut borrowing rates. However, there remains skepticism in financial circles about Warsh getting Powell’s job, as they believe his views on cutting the Fed’s balance sheet may drive long-term rates higher.

But unlike many investors, Druckenmiller backs Trump’s appointment of Warsh. He argued that the former Fed governor, a partner at his family office since 2011, supported rate cuts during the financial crisis and favored easing policy at the outset of the pandemic. The duo even warned the Fed in a 2018 commentary against raising rates too soon, a recommendation the central bank later walked back amid market turmoil.

Druckenmiller also asserted that Warsh is open-minded about Greenspan’s methods, which shaped Fed policy during a decade of strong productivity growth. He added that Warsh’s Stanford role and proximity to Silicon Valley make him exceptionally equipped to weigh tech risks and benefits, with a network few can match. “I could not think of a single other individual on the planet better equipped,” stated Druckenmiller. 

He further contended, “I’m really excited about the partnership between him and Bessent. Having an accord between the Treasury secretary and Fed chair is ideal.”

The Treasury Secretary concurs with Warsh that a spike in AI productivity could allow the Fed to lower rates without triggering inflation. According to the Financial Times, Bessent and Warsh have already been acquainted through their shared relationship with Druckenmiller.

Analysts say Warsh’s selection was an odd choice

Some on Wall Street view Trump’s selection of Kevin Warsh as Fed chair as highly unusual. Warsh, if confirmed, will need to reconcile his previous support for higher interest rates with a president eager to reduce rates and willing to pressure Fed members to do so.

Warsh secured Trump’s spotlighted contest by promising Fed “regime change,” pledging to shrink the balance sheet, and arguing that AI-driven growth will curb inflation. His stance was seen by some as something that would ease the ‘Sell America’ frenzy.”

David Robin, an interest-rate strategist at TJM Institutional Services, stated, “Warsh is a data-dependent, Fed-credibility choice, so Fed watchers can breathe a bit of a sigh of relief. Conversely, I’m hard-pressed to think Trump would appoint anyone who didn’t commit to lower rates over time starting in June.”

However, Jonathan Levin noted in Bloomberg Opinion that Trump turning the Fed chair hunt into a spectacle and picking Warsh are likely to both roil markets and leave most people unsatisfied, including himself. He also claimed that Warsh’s hawkish profile would make it even more difficult for him to build credibility.

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