Joe Weisenthal and Tracy Alloway host Skanda Amarnath, co-founder and executive director of Employ America, to discuss Trump's nomination of Kevin Warsh as the next Federal Reserve chair.

The conversation explores mixed reactions to Warsh's nomination, with critics like Neil Dutta calling him 'everyone's least favorite candidate' while supporters like Jason Furman and Mohamed El-Erian praise his qualifications.

Amarnath provides detailed analysis of Warsh's track record as a Fed governor during the 2008 financial crisis and his subsequent evolution as a monetary policy commentator and Wall Street Journal op-ed writer.

Mixed Elite Reactions to Warsh Nomination

Neil Dutta criticized the pick, saying 'President Trump has picked everyone's least favorite candidate, Kevin Warsh for the next Fed Reserve chief' and noting Warsh's repeated rejections.

Mohamed El-Erian defended Warsh, stating 'Having observed and interacted with Kevin during his prior tenure as Fed governor, in academia and as a fellow member of the Group of Thirty, I believe he brings a strong mix of deep expertise, broad experience, and sharp communication skills.'

Jason Furman added that 'Kevin Warsh is well above the bar on both substance and independence' and should be confirmed by the Senate.

The Group of Thirty, including El-Erian, Furman, and George Osborne, represents 'former central bankers, former finance ministers, and movers and shakers' who have rallied around Warsh.

Warsh's Problematic 2008 Crisis Performance

During the 2008 financial crisis, Warsh 'was very eager to tout how well the financial system was performing, even as it was descending into crisis in 2007 and 2008.'

He prioritized inflation concerns 'in the summer and fall of 2008 until Lehman failed' and was focused on 'the wrong ball' during the crisis.

In 2009, with 'historically high and rising unemployment,' Warsh argued this 'was not really a big problem, not something that the Fed should be focused on.'

He opposed QE with predictions about inflation and asset bubbles that 'weren't really true' and reflected 'misunderstanding of what the Fed's balance sheet really does.'

Pattern of Political Shape-Shifting

Warsh shows 'a growing pattern of both obsequiousness and partisanship' with views that flip based on which party controls the White House.

In 2024, he was 'pretty clearly in the camp of the Fed is risking not keeping interest rates high enough for long enough to kill inflation' until November.

After Trump's election victory, Warsh 'basically did a big one-eighty' from hawkish to dovish views, raising questions about 'what did you have to promise to President Trump to get the job.'

This pattern includes being hawkish under Democrats but shifting toward 'deregulation and productivity growth are going to be disinflationary' arguments under Republicans.

Criticism of Data-Dependent Fed Policy

Warsh criticized the Fed for being 'too dependent on data' and focusing on 'data dependency too much near term forecasting' in a recent speech.

Amarnath questioned this approach: 'what do we have if we don't have data? Right, what do we have if we don't have a language that you can talk about facts?'

Data provides 'a useful language for being able to get people from different policy preferences, different political orientations to get on something of the same page.'

The anti-data stance 'speaks to a disinterest in being perceived as objective and lack of interest in actually doing something that can broaden legitimacy around the Fed.'

Warsh's Elite Connections and Background

Warsh 'was one of the youngest people selected to be a Fed governor' with critics questioning whether he was qualified at the time.

His background was as 'an investment banker at Morgan Stanley in technology media telecom for a brief period' before joining the Fed.

His father-in-law is 'Ron Lauder of Estée Lauder fame' who is 'one of the big donors to the Republican Party and has been a big donor to Trump.'

Warsh has been 'a visiting fellow at the Hoover Institution, which is an intellectual hub for conservative economic thought.'

Challenges for Fed Balance Sheet Policy

Money markets are 'giving the signal that actually the balance sheet is getting to a place where if you try to run it down from here and run it down too abruptly, you might get more dysfunction.'

The financial system now needs 'meaningfully more' liquidity than before the financial crisis due to 'regulation, supervision, and bank risk management practices.'

Warsh will likely 'have to swallow his pride a bit and be more supportive of gradual balance sheet expansion' despite his long-standing QE criticism.

His views on balance sheet policy are 'all kind of incoherent' and may need to change when facing 'hard realities' as Fed chair.