Greenspan 2.0: Why Kevin Warsh is NOT a Monetary Hawk

President Trump Selects Kevin Warsh as New Fed Chair

After an extended selection process and rampant speculation from Wall Street investors, President Trump finally made his Jerome Powell’s replacement as Chair of the Federal Reserve. Until the very last few hours, betting markets such as PolyMarket had Rick Rieder, a Wall Street legend and the CIO of Global Fixed Income at BlackRock (BLK), as the frontrunner. Rieder, who is seen as a massive ‘dove’, seemed like the obvious choice after months of President Trump denouncing current Federal Reserve Chair Powell as too ‘hawkish.’ However, with a handful of hours left, Warsh’s odds spiked and, ultimately, he was chosen.

Who is Kevin Warsh?

Like Treasury Secretary Scott Bessent, Kevin Warsh is a close colleague and friend of investing legend Stanley Druckenmiller. Warsh has been a partner at Stanley Druckenmiller’s ‘Duquesne Family Office’ for nearly a decade and a half, communicating regularly and often bouncing ideas off each other. Prior to his time with Druckenmiller, Warsh served as the youngest-ever member of the Federal Reserve Board of Governors.

Precious Metals Slammed: Is Warsh a ‘Hawk’?

Kevin Warsh has a reputation on Wall Street as a ‘hawk’ for his outspoken criticism of the Fed and concern about inflation during the 2008 Global Financial Crisis. Based on Friday’s action, markets agree. Friday, precious metals and precious metals ETFs such as the SPDR Gold Shares ETF (GLD) and the iShares Silver Trust ETF (SLV) were slammed amid “hawkish” Fed fears. In fact, intraday, silver fell nearly 40%, marking one of the worst single-session losses over the past century.

Warsh is a Departure from the Keynesian Era

At this juncture, Wall Street can only work off presumptions about Kevin Warsh’s previous statements. Based on his historical statements, Warsh might not be as much of a “hawk” as Wall Street fears, but he is also a departure from the “Keynesian” era, which was defined by fiscal stimulus and loose money (which created a “wealth-rich, income-poor economy.”

Instead, Warsh often questions quantitative easing and, like Secretary Scott Bessent, prioritizing investment, productivity, and private-sector credit creation over financial engineering.

Warsh Believes an AI Productivity Boom is Coming

Treasury Secretary Scott Bessent has been calling for a non-inflationary productivity boom driven by deregulation, tax cuts, and AI-driven productivity gains. Additionally, Bessent has called on Fed Chair Powell to keep an open mind toward lowering interest rates as Fed Chair Alan Greenspan did during the internet-driven productivity boom of the late 1990s. Based on his previous comments, Warsh shares similar views on the AI-driven productivity boom, saying:

“The closest analogy that I have in central banking is Alan Greenspan in 1993 and 19994. The internet revolution was with us. He believed, based on anecdotes and rather esoteric data that we weren’t in a position where we needed to raise rates because this technology wave was going to be structurally disinflationary. A lot of his peers at the Federal Reserve, and certainly in the academic profession and economics, they said “Oh, the economy is overheating. You need to get going and raise rates. This will be inflationary.” And he sat on his hands and he persuaded his colleagues to be patient. As a result, we had a stronger economy. We had more stable prices and we had greater US competitiveness.”

Although Wall Street was hyper-focused on the moves in precious metals on Friday, it’s worth looking at rate cut odds. The chances of a rate cut in December actually rose despite the “hawkish” sentiment.

Druckenmiller, Dalio Praise Warsh

Stanley Druckenmiller has long been a critic of the Federal Reserve and President Donald Trump. However, Druckenmiller, the most consistent money manager of his time, has glowing words for Trump’s Fed pick, saying:

“The branding of Kevin as someone who’s always hawkish is not correct. I’ve seen him go both ways. I could not think of a single other individual on the planet better equipped.”

Meanwhile, hedge fund manager Ray Dalio echoes the positive sentiment, saying:

Kevin Warsh was a great choice. We who have been engaged with policymakers and markets for a long time know him and respect him for his capabilities and judgement. He is knowledgeable and a reasonable man who understands the risks of having a Fed policy that is too easy as well as too tight and how to judge what’s too easy and what’s too tight. Presumably, he also knows how to deal with the president and the Treasury well.”

Trump: Shock and Bore Approach

President Trump’s Fed pick is yet another example of the president’s “shock and bore” approach. While Trump often appears to have extreme economic views, he often ends up meeting in the middle. Kevin Warsh is a safe, measured Federal Reserve choice.

In Conclusion

Wall Street misunderstands new Fed Chair Kevin Warsh as a “hawk.” While Kevin Warsh will almost certainly rein in years of quantitative easing, he will be open to interest rate cuts, especially with the coming AI-driven productivity boom.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research