Kevin Warsh, an angry Trump and Jerome Powell Déjà vu: how history is repeating itself

Kevin Warsh had a very thin tightrope to walk yesterday: get too dovish, and risk his credibility with the bond market; but get too hawkish, and stocks would get sad.

At first, it seemed like he tipped too far into the hawkish side as the S&P fell to the lowest close since July.

By Thursday morning, traders had decided they were over it.

The Nasdaq rallied over 400 points, or 1.6%, the S&P rallied more than 1%.

The Dow added 224 points, or 0.4%, which is not nothing after it fell more than 630 points the day before.

The whole thing lasted about as long as a hangover.

The only person who didn’t cheer was the president.

Trump told reporters late Wednesday that he’d spoken to Warsh before the vote; a communication Warsh himself refused to talk about during the conference.

“I talked to Kevin, and I said, you might as well vote with the Board because it’s not gonna matter,” he said, describing the committee as “very hostile” and “very political.” Then he went to Truth Social to demand rates of “1%, or less, because we are the Best Credit in the World—BY FAR,” adding a call to “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” This is the outcome that Trump has spent years trying to avoid.

He attacked Jerome Powell relentlessly during his final stretch of Fed chair for not cutting fast enough, floated firing him, suing him, and picked Warsh in part because he’d been a vocal critic of Powell’s Fed. (Of course, Trump chose not to renew Obama’s pick, Janet Yellen, for a second term as Fed chair, and picked Powell because he was “out of central casting,” a phrase he repeated when he chose Warsh to replace Powell 12 years later).

Last fall, Trump accused the Fed of being on the verge of its “sixth or seventh big mistake” by keeping rates too high.

Four months into the job, Warsh has raised them again, after Powell spent the last three years not doing so.

That puts Warsh and Trump at odds over how they describe the vote.

Warsh said that, “very plainly, inflation is too high,” and put a full-throated defense of the hike; but by Trump’s account, Warsh was forced to hike against his wishes to just go along with the board.