Overview of Lots More — “Skanda Amarnath on the Risks of Kevin Warsh”
This Lots More episode features Skanda Amarnath (co‑founder of Employee America) discussing the nomination of Kevin Warsh as President Trump’s pick to lead the Federal Reserve. The conversation weighs praise from some establishment economists against substantive concerns about Warsh’s crisis record, partisan tilt, anti‑data rhetoric, and what his leadership could mean for Fed independence, crisis management and markets.
Key takeaways
- Reactions are mixed: prominent figures (Mohamed El‑Erian, Jason Furman) publicly endorsed Warsh’s experience and communication skills, but others (including Skanda and Neil Dutta on the show) are wary.
- Main concern: Warsh’s actions and rhetoric during the 2007–09 financial crisis emphasized inflation risks and downplayed unemployment and financial distress; he was critical of QE and the expanded Fed balance sheet.
- Pattern of partisanship/shape‑shifting: Warsh’s policy stance appears to move with political context—more hawkish under Democratic presidencies, more dovish when Republicans (and especially Trump) are in power—raising doubts about his independence.
- He has criticized the Fed’s “data‑dependence” and called for “regime change,” language that worries observers because it suggests moving away from objective, data‑based decision making.
- Practical constraints: money markets and the post‑crisis financial plumbing make an abrupt shrinkage of the Fed balance sheet risky; operational realities may force any chair to moderate prior ideological positions.
- Persuasion and credibility matter: a Fed chair needs to convince the FOMC and stakeholders with evidence and indicators. Warsh’s perceived lack of data‑rooted arguments could limit his ability to build consensus.
Topics discussed
- Warsh’s record during 2007–2009: mistaken emphasis on inflation and criticisms of QE; public track record (speeches, op‑eds).
- Reactions from the economics community: endorsements vs reservations.
- Warsh’s institutional affiliations and networks (Group of Thirty, Hoover Institution, Wall Street Journal op‑eds) and possible political connections.
- Risks to Fed independence and legitimacy under a chair perceived as politically pliant to the president.
- Technical/operational risks around the Fed balance sheet and money markets if an ideologically motivated drawdown were attempted.
- Comparative credibility: how Warsh stacks up versus other potential frontrunners (e.g., Christopher Waller) who have demonstrated policy views outside an electoral context.
Notable quotes / soundbites
- Mohamed El‑Erian (quoted): Warsh “brings a strong mix of deep expertise, broad experience and sharp communication skills.”
- Jason Furman (quoted): Warsh “is well above the bar on both substance and independence to be chair of the Federal Reserve. The Senate should ask tough questions…”
- From Warsh (as discussed): his call for “regime change” at the Fed and a line about “breaking some heads” (a phrase flagged as potentially inflammatory).
- Skanda on Warsh’s crisis posture: “He was very eager to upweight the importance of inflation… even as the financial system was descending into crisis.”
Risks and implications
- Fed independence and credibility: a chair perceived as politically responsive risks eroding bipartisan trust essential during crises (2008, 2020 examples).
- Crisis management: if trust across branches is low, the Fed’s ability to coordinate emergency policy may be hampered.
- Markets and implementation risk: attempting rapid balance sheet normalization could cause money‑market dysfunction (repo spikes, liquidity stress).
- Policy coherence: rhetoric against data‑dependence could undermine internal decision frameworks and external accountability.
- Persuasive limits: without data‑backed arguments, a chair may struggle to assemble consensus on the FOMC, especially with diverse appointees and regional presidents.
What to watch next (actionable items for investors / observers)
- Confirmation hearings: look for concrete answers on current policy stance, balance sheet strategy, and how Warsh would use data and forecasts.
- Public speeches and op‑eds: monitor whether Warsh provides concrete, indicator‑based reasoning or stays at abstract calls for “regime change.”
- Money‑market indicators: repo rates, effective Fed funds, and reverse repo usage for early signs of liquidity stress if balance sheet policy shifts.
- FOMC voting patterns and minutes: how persuasive is Warsh with colleagues; does he rely on evidence or political arguments?
- Congressional and market reactions: any legislative pushback or risk‑premia in markets that signal concern over Fed independence.
Suggested question Skanda would ask Warsh (single priority)
- “Where should interest rates be today and why?” — i.e., give observable indicators, an expected path and clear reasoning tying data to policy, not just abstract calls for reform.
Short background on Kevin Warsh (as discussed in the episode)
- Former Fed governor (young appointee) with a public profile of articles and speeches criticizing QE, the Fed’s balance sheet and certain regulatory policies.
- Member of elite policy networks (Group of Thirty); has ties to conservative intellectual hubs (Hoover Institution) and Wall Street/finance circles.
- Viewed as politically attuned—his public positions have shifted over time in ways critics call partisan.
Conclusion
Skanda Amarnath frames the Warsh nomination as technically credible on paper (experience, networks) but materially risky: his crisis record, critique of Fed tools, anti‑data posture and apparent political malleability raise legitimate questions about his ability to maintain Fed independence, build consensus on the FOMC, and steer monetary policy effectively during shocks. The confirmation process and early public statements will be critical to assessing whether those risks will be realized or mitigated.