Warsh throws his hat into the ring with lavish praise of Trump.
Warsh Lavishes Praise on Trump in WSJ Op-Ed
Please consider The Federal Reserve’s Broken Leadership by Kevin Warsh.
The cost of curiosity is approaching zero, owing to a new age of American innovation. And the rewards for curiosity are surging, thanks in large part to pro-growth policies championed by President Trump. That’s why the U.S. is poised to grow faster than any other major economy. Americans would benefit from higher take-home pay and greater purchasing power if only the Federal Reserve’s leadership stopped defending its mistakes and started correcting them.
The common explanation for the economic leap is artificial intelligence. The U.S. technology stack is impressive: new large language models built atop cutting-edge chip design. But a more fitting name for this feat of AI is American ingenuity, which includes a mix of human agency, nimble capital and a culture of dynamism. AI is profoundly changing both the method of invention and the speed of innovation.
The administration’s new regulatory and tax policies are well-timed. The deregulatory agenda, the most significant since President Ronald Reagan’s, has begun to liberate households and businesses from the dictates of Washington’s bureaucracy. Meanwhile, the new tax bill, which the president signed in July, has already spurred massive new capital investments, including in high-value manufacturing and data centers. The president’s policies have resulted in more than $5.4 trillion of private capital investment in the U.S. this year, accelerating quarter-over-quarter going into 2026. Capital expenditures on equipment, a leading indicator of aggregate future investment, are growing at an annual rate of around 8%, more than twice the rate during the Biden years.
Perhaps the most underappreciated characteristic of the Trump administration is its admiration for individual achievement. Treating people based on their merits rather than their status or sensibilities is the renewed American credo. The affinity group that matters most is that of our fellow Americans.
Wall Street and Silicon Valley are booming, and U.S. workers are finally getting a step-up in their real take-home pay. Even so, the benefits of the American juggernaut are yet to be realized fully. Among the chief obstacles is the Fed. The world is moving faster, yet the Fed’s leaders are moving slower. They appear stuck in what Milton Friedman called “the tyranny of the status quo.”
What’s to be done? Four things. First, the Fed should discard its forecast of stagflation in the next couple of years, as if subpar growth and inflation 40% above target is the best that can be done. AI will be a significant disinflationary force, increasing productivity and bolstering American competitiveness. Productivity improvements should drive significant increases in real take-home wages. A 1-percentage-point increase in annual productivity growth would double standards of living within a single generation.
Second, inflation is a choice, and the Fed’s track record under Chairman Jerome Powell is one of unwise choices. The Fed should re-examine its great mistakes that led to the great inflation. It should abandon the dogma that inflation is caused when the economy grows too much and workers get paid too much. Inflation is caused when government spends too much and prints too much. Money on Wall Street is too easy, and credit on Main Street is too tight. The Fed’s bloated balance sheet, designed to support the biggest firms in a bygone crisis era, can be reduced significantly. That largesse can be redeployed in the form of lower interest rates to support households and small and medium-size businesses.
Third, the Fed should take responsibility for its regulatory failures, including a deposit run on banks in late 2022 and early 2023. The Fed’s rules and regulations have systematically disadvantaged small and medium-size banks, which has slowed the flow of credit to the real economy. Fed leadership should support rather than undermine the good early work of the new vice chairman for supervision, Michelle Bowman, who is crafting a new regulatory framework.
Fourth, the Fed under Janet Yellen and Mr. Powell has spent more than a decade negotiating bank regulatory and supervisory standards with its global counterparts in Basel, Switzerland. Fed leaders have tried to bind U.S. banks to a complicated, vaunted set of rules in the name of global regulatory convergence. In my view, the Basel endgame isn’t America’s endgame. A new, reformed American regulatory regime should make the U.S. the best place for the world’s banks to do business. That would spur new lending here at home.
The Fed is an institution whose reach has extended far beyond its grasp. Fundamental reform of monetary and regulatory policy would unlock the benefits of AI to all Americans. The economy would be stronger. Living standards would be higher. Inflation would fall further. And the Fed will have contributed to a new golden age.
What a Rant
I agree with much of it. Basel rules are complex and some are stupid. The Fed has never admitted its mistakes.
Heck, the Fed does not understand inflation at all.
However, there’s more than a bit of irony in Warsh’s statement “Inflation is caused when government spends too much and prints too much.”
Government is spending to much. But what has Trump done but increase that?
Deficit Spending
Trump’s TCJA II, AKA (One Big Beautiful Bill) hugely added to the deficit.
On top of that, Trump is proposing big increases in military spending with a “Golden Dome” missile shield.
Recently, Trump proposed a “Golden Fleet”.
And Now Trump wants to rebate $2,000 to everyone from tariffs collected in a massive $3 trillion (alleged) wealth redistribution scheme.
Warsh Pledges to Be a Trump Parrot
Warsh ignores the possibility that all of this may cause stagflation. Well, maybe he’s right. But he doesn’t know, nor does Powell.
And he ignores the huge possibility that AI spending is in a massive bubble.
The most galling thing is Warsh’s lavish praise of Trump while ignoring the massive deficit spending of this administration, while moaning inflation is caused by too much government spending.
If the market agreed with Warsh, long-term yields would be crashing. Instead, the 30-year long-bond yield is near a 15-year high.
Does Warsh not understand market forces? Does he not understand the Fed does not control long-term rates. Or is Warsh proposing more QE to control long-term rates?
The only logical answers are: 1) Warsh is too stupid to be Fed chair or 2) Warsh is too much a Trump parrot to be Fed chair.
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November 13, 2025: The Fed’s Balance Sheet Is $6.5 Trillion, the New York Fed Wants More
Believe it or not, more QE is coming right up. But why?
November 9, 2025: Trump Labels Those Against Tariffs as “Fools”, Proposes $2,000 to Everyone
Trump proposes another massive wealth redistribution scheme.
Gold Surges to New Record High
Most importantly, I would like to see Warsh address this: Gold Surges $100 to New Record High Above $4,300 as Bond Yields Dive
Gold reiterates its message: Spending is out of control with no faith in the Fed.
AI Bubble?
Warsh’s AI dream machine may be nothing more than a dot-com style investment bubble.
A Word About Faith
Gold does not believe the Fed is under control, Congress is under control, budget deficits are under control, or Trump is under control.
And neither do I.
