Treasury Secretary Scott Bessent is anticipated to assist Kevin Warsh in balancing a “hawkish” monetary policy approach while also catering to President Trump’s preference for looser money. This perspective comes from Wall Street executives familiar with both Bessent and Warsh, who have connections in Trump’s inner circle.
An economist linked to Trump’s economic advisors believes Warsh will lean on Bessent not just for navigating the Senate confirmation process, but also for managing the unpredictable demands of the president and the Federal Reserve regarding short-term interest rates.
The ongoing contention over short-term rates, which has included disputes with Trump and critiques of Fed Chairman Jerome Powell, played a role in Warsh’s recent appointment. It’s expected that these themes will dominate his confirmation hearings, as senators from both parties will seek assurances that he won’t simply be a puppet for the president.
Warsh is characterized as a hawk who argues that the past easy financing by Fed chairmen has resulted in rising costs, which disproportionately impact the working class. However, he’s also aware of the risks associated with upsetting someone who could make his job quite difficult if he doesn’t align on rate cuts.
Bessent is considered instrumental in helping Warsh navigate this complex situation.
Warsh is likely to maintain communication with Trump, which some view positively, suggesting that such dialogue is better than the current state of affairs where the president attacks the Fed chairman, complicating his role. Bessent’s rapport with Warsh is also expected to help ease tensions.
Reports indicate that Bessent was crucial in securing Warsh’s Fed appointment. They are long-time friends and share a mentor in the well-known investor Stan Druckenmiller.
Bessent, historically a top trader at George Soros’s hedge fund, made headlines in 1992 for shorting the British pound, an action that pressured the Bank of England into withdrawing from the European Exchange Rate Mechanism.
After departing the Fed board in 2011, Warsh became an advisor to Druck’s family office fund, which manages his substantial wealth, reportedly more than $12 billion.
Both Bessent and Warsh have been known to influence Trump’s decisions, including persuading the president to waive certain high tariffs deemed harmful to the economy. Warsh has also acted as an informal advisor to Trump, which helped him oust Kevin Hassett from the National Economic Council.
Recently, Warsh has indicated he might be open to lowering interest rates significantly—potentially by 0.5%—once he assumes office.
This would be pivotal for him as the rates on long-term Treasuries are influenced by market dynamics, but consumer interest rates are tied to yields that he would focus on closely.
To convince the market of his hawkish stance, Warsh will likely look to lessen the Fed’s sizable debt portfolio, which ballooned under previous chairmen due to extensive money printing.
It’s probable that after the midterms, a reverse “quantitative easing” might be considered since rising long-term bond rates could lead to complications in the bond market and political backlash.
Bessent’s role may involve persuading the president that some short-term discomfort is necessary for long-term gains. The excessive liquidity that has built up since the 2008 financial crisis continues to contribute to price increases—a major reason for Trump’s low economic approval ratings and the GOP’s challenges in the upcoming elections.
However, Warsh faces additional political challenges. He needs Senate confirmation, and Republican Senator Thom Tillis from North Carolina has stated he won’t support Warsh until Trump concludes his investigation into Powell.
In addition, the Justice Department is looking into Powell for potential overspending at the Fed’s new headquarters. Tillis believes it’s an unfounded investigation, as it’s hard to believe Powell would act illegally like others have in D.C. There are also concerns about executive interference in independent agencies.
Bessent might soon recommend that the president stop the probe into Powell to facilitate Warsh’s entry into the Fed before Powell’s term ends in May. This situation could pressure Powell to resign, paving the way for Warsh to start implementing rate cuts as midterm elections approach.
“Certainly, Kevin will give Trump what he wants with interest rate cuts,” an insider noted. “But then he’ll call it as he sees it. So, I believe he’ll get approved.”
