Why Trump's pick for Fed chair will not bring home the bank for the president

• Warsh's AI productivity argument lacks current evidence, as productivity gains have not yet materialized while AI investments are driving up demand and prices for electricity, chips, and fueling stock market growth
• Trump controls only 3-4 potential votes on the 12-member committee (including Warsh, Stephen Miran, and two other appointees), far short of the seven needed to set policy
• Current economic conditions differ sharply from the 1990s: Trump's tariffs and deportations are raising costs and shrinking labor supply, while the federal debt has doubled to over 100% of GDP compared to 54% under Clinton

Summary

Key Development:

Donald Trump has nominated Kevin Warsh to replace Jerome Powell as Federal Reserve chair next month. However, analysts predict Trump will likely fail to gain control over monetary policy despite this appointment.

Main Players:

• Kevin Warsh: Trump's Fed chair nominee, former Fed governor with historically hawkish views on inflation
• Jerome Powell: Current Fed chair being replaced
• Stephen Miran: Trump's former chief economic advisor advocating for increased presidential control over the Fed

Warsh's Position:

Warsh has reversed his previous hawkish stance and now advocates for lower interest rates despite persistent inflation. He argues that the AI revolution will boost productivity—similar to Alan Greenspan's 1990s argument about the IT boom—allowing rate cuts without fueling inflation.

Critical Challenges:

The article outlines why Warsh's argument is weak:

• Trump's tariffs are raising costs for businesses and consumers
• Aggressive deportation policies are shrinking labor supply
• Budget deficit stands at 6% of GDP, with debt exceeding twice the 1990s level (over 108% of GDP vs. 54%)
• No evidence yet of an AI-driven productivity boom materializing
• AI investment is actually fueling demand and raising prices for electricity and memory chips

Political Reality:

Warsh faces significant obstacles in the 12-member Federal Open Markets Committee. While Trump has some allies (including Warsh, Miran, and two other appointees), reaching the required seven votes for policy changes appears unlikely. Courts have blocked attempts to remove opposing governors, and regional Fed bank presidents were reappointed in December.