What Warsh’s Crisis-Era Fed Days Say About His Approach

Kevin Warsh, President Donald Trump’s pick to run the Federal Reserve, left a long track record when he served as Fed governor from 2006 to 2011.

Not all of that history is instructive for gauging his views today. Warsh was a hawk after the 2008  financial crisis, supporting the Fed’s extraordinary moves to halt the panic but arguing for a quicker removal once fears eased.

In recent years, he’s adopted a more dovish tone—aligning with Trump’s view that interest rates should be lower. It’s a dichotomy that market analysts will watch closely over Warsh’s four-year term after he replaces Fed Chair Jerome Powell in mid-May.

“We do believe Warsh will likely be a proponent of rate cuts in 2026, but the main question is whether his former hawkish persona makes a comeback down the road,” wrote Oscar Munoz, chief U.S. macro strategist at TD Securities.

There are consistent themes in Warsh’s years of speeches and remarks at Federal Open Market Committee meetings—where, at 35, he was the youngest member ever when he joined. They’ll come up as the Senate weighs whether to approve Trump’s nomination of Warsh, who was an economic adviser to President George W. Bush before joining the Fed in 2006.

Warsh, now a fellow at the conservative Hoover Institution, has long been critical of the Fed’s growing footprint in bond markets. It’s a view that clashes with the Fed’s current approach—despite paring back its COVID-era bond purchases, the central bank’s balance sheet is now at nearly $6.6 trillion. Further unwinding could raise mortgage rates, analysts say.

Warsh has long worried about inflation, which didn’t pose a problem after the crisis as he warned, but did surge a decade later. 

And he has also shown a pragmatic streak. The former Morgan Stanley banker and lawyer gave the economist-heavy Fed insights into markets during the depths of the crisis—and voted for a few policies he disagreed with to show consensus.

Smaller Balance Sheet?

Warsh was a skeptic of the Fed’s quantitative easing programs, in which the Fed bought large amounts of Treasury and mortgage-backed securities.

The goal was to bring down long-term interest such as mortgage rates—after the Fed’s slashing of short-term rates to zero in 2008 proved insufficient to revive the economy. He was particularly critical of QE2, the second leg of the effort in November 2010, where the Fed bought $600 billion in bonds. 

The risks of the Fed’s intervention were “unknown, uncertain, and potentially large,” he said at the FOMC’s November 2010 meeting, all while the benefits seemed “small and fleeting.” He blamed the sluggish recovery on “fiscal, regulatory and trade policies” that were “unfriendly to economic growth.”

His skepticism continued long after his Fed days. In a Wall Street Journal op-ed in November 2025, Warsh said the Fed’s balance sheet was “bloated” and could “be reduced significantly.”

But unwinding it could bring “unpleasant consequences for mortgage rates,” wrote Samuel Tombs, chief U.S.economist at Pantheon Macroeconomics. Making homebuying more expensive would be at odds with Trump’s desire to bring rates down.

And it would require significant changes in how the Fed conducts monetary policy and oversees banks in the post-2008 era, wrote Joseph Abate, a strategist at SMBC Capital Markets.

“Wanting a smaller Federal Reserve balance sheet is very different from practically achieving one,” Abate wrote.

For his part, Warsh noted the risks of exiting QE too swiftly in January 2010, even if he noted he’d personally be “thrilled” to rid the Fed of its bond purchases. An abrupt exit would make Fed policy seem “confused and confusing,” he said. 

Forward Guidance

Not that confusion is necessarily unhealthy in his view—Warsh has long said the Fed can tend to give a bit too much guidance to markets.

“We need to wean the markets from the degree of certainty that we no longer possess,” Warsh said after a Fed rate hike in 2006.

He sent a similar message in April 2025, saying in a speech that Fed officials would be “well-served to skip opportunities to share their latest musings.” Otherwise, he warned, policymakers “can become prisoners of their own words.”

He’s also criticized the Fed for “breathlessly awaiting” month-old, revision-prone data to make its decisions, saying the Fed “should care little about two numbers to the right of the decimal point in the latest government release.”

Warsh’s repeated focus on the issue could shape the Fed’s policy approach going forward, wrote Wells Fargo Chief Economist Tom Porcelli. Powell has been known for “insurance cuts” — lowering rates slightly to get ahead of brewing risks in economic data. But those might now become less common, Porcelli wrote.

“Under this framework, inflection points may become less frequent but more seismic at times when the Chair attempts to change course,” he wrote.

Reaching Consensus

For all of Trump’s hopes of lower rates, any decisions will need to be approved by the 19-member FOMC—where consensus is key.

It’s an institutional feature that Warsh understands, having voted for the Fed’s bond-buying programs despite his personal disagreements. When officials signed off on the QE2 program, Warsh told then-Fed Chair Ben Bernanke that if he were chair, he “would not be leading the Committee in this direction.” But he also explained why he didn’t dissent.

“My respect for you during this last four and a half years is incredibly high,” Warsh said. “I am awed by the burdens that you are confronting, and I wouldn’t want to undermine at this important moment the chance that this program could be successful.”

Warsh resigned from the Fed shortly after.

Warsh enters an FOMC with significant division. Some more hawkish officials have disagreed with the Fed’s rate cuts, while a couple of Trump appointees have supported more aggressive action.

The Fed’s actions last year thus got some dissenting votes in either direction, but Powell was nonetheless able to steer the committee toward lowering rates three times, analysts say.

“Criticize Powell as much as you like (and yes, we have been critical of him at times), but he is one heck of a consensus builder, carefully crafting and selling his message to members ahead of meetings,” Wells Fargo’s Porcelli wrote. “This will be critical for Warsh.”