President Donald Trump said that the person he picked for the chair of the Federal Reserve could boost economic growth by 15%, which is an extremely optimistic goal and also highlights the pressure that Kevin Warsh would face if he were confirmed for the position.
Trump told Fox Business in an interview that Warsh was his “second choice” in the last selection and that choosing Jerome Powell as the chair of the Federal Reserve was a huge mistake.
In a video interview aired on Monday, Trump told host Larry Kudlow (who served as a senior aide in Trump’s first administration) that if Wall “can do his job,” then “we can grow by 15%, I think even more.” “I think he’ll be great. He’s a very good man.”
It is not yet entirely clear whether Trump was referring to year-on-year growth or some other indicator. The US economy is expected to grow by 2.4% this year, with an average annual growth rate of 2.8% over the past five decades. Since the 1950s, there have been only a few instances when the growth rate of the gross domestic product exceeded 15%, including the third quarter of 2020, when businesses reopened after pandemic-related closures.
During the search for a new chairperson, Trump said he hoped to find a candidate who could lower interest rates. Later, he stated that if Warsh advocated for raising interest rates, he would not choose Warsh.
These comments clearly indicate that Trump is betting that if Walsh is confirmed, he can boost the economy before the midterm elections, which have historically been extremely difficult for US presidents.
Previously, the U.S. stock and bond markets experienced consecutive declines because of Wallach’s policy proposal of a combination of interest rate cuts and balance sheet reduction.
Stephen Miler, a member of the Federal Reserve Board, said that the central bank’s balance sheet needs to be downsized, but this should not prevent policymakers from choosing large-scale asset purchases during economic crises.
Milan said that reducing the Federal Reserve’s balance sheet would diminish its influence in the financial market and provide policymakers with more options in the event of future crises.
Milan said in a podcast recording on Monday: “Expanding the balance sheet when interest rates hit the zero lower bound and during a financial crisis is the right move. But you should keep your cool and be prepared for any eventuality.”
Milan said that he supports the plan to gradually reduce the balance sheet, but this cannot be achieved immediately. Milan said, “There are still many obstacles to overcome in the regulatory process before we reach our goal. This will take a long time. We cannot start reducing emissions (balance sheet reduction) tomorrow.”
But Warrack’s Senate confirmation could be delayed because retiring North Carolina Republican Senator Thom Tillis has promised to block any confirmation of Fed officials as long as the Trump administration continues to push the Justice Department to investigate Powell and the Fed’s building renovation project.
Kudlow questioned Trump whether the Justice Department’s investigation was worth the price of putting off the nomination of Warsh.
“I don’t know. We’ll have to see what happens,” Trump said. “I fought with Tillis for so long that he eventually dropped out.”
Trump doesn’t seem to be worried about possible delays. He added, “If it does happen, it does happen.”
Trump’s remarks in an interview with Fox Business Channel suggest that Warsh may be facing a high-stakes game. His comments indicate that Trump is not concerned about inflation, which typically surges at an economic growth rate close to 15%, and the current inflation rate has remained persistently high.
According to the median estimate in the December forecast, Fed officials expect only one rate cut in 2026, but investors still anticipate two rate cuts this year.
