Episode summary
How Warsh Could Shape Fed Policy
Exchanges (Goldman Sachs)
· · Guests: Rob Kaplan
Summary
Rob Kaplan argues that Kevin Warsh is likely to clear confirmation and could be in place for his first FOMC meeting in June, but that the bigger question is how he would steer policy once there. Kaplan says Warsh has long been identified with a high bar for QE, a stronger focus on the balance sheet, and skepticism toward the Fed’s heavy use of forward guidance and the dot plot.
Kaplan thinks Warsh would lean dovish in arguing that the Fed should look through near-term inflation and focus on disinflationary forces such as AI adoption and Chinese overcapacity. Even so, Kaplan says the current committee is scarred by past inflation mistakes and is unlikely to cut in 2026 without visible improvement in headline inflation. He says the market may be right that rates stay on hold for longer.
On the balance sheet, Kaplan expects a gradual, deliberate runoff rather than an abrupt move, because he thinks Warsh and Secretary Bessent will want to avoid putting upward pressure on rates. His broader concern is the war-driven oil shock, which he says has weakened growth, made prices stickier, and left the Fed with little choice but to keep analyzing rather than act aggressively.
Key takeaways
- Rob Kaplan expects Kevin Warsh to be confirmed and seated for his first FOMC meeting in June.
- Kaplan says Warsh is likely to push the Fed to talk less, use forward guidance less, and possibly downgrade or remove the dot plot.
- Kaplan believes Warsh will argue that AI and Chinese overcapacity are disinflationary, but the committee will want proof before easing.
- Kaplan says a 2026 rate cut is unlikely unless headline inflation shows demonstrable improvement.
- Kaplan expects Warsh and Treasury Secretary Bessent to shrink the balance sheet gradually, not abruptly, to avoid pressuring rates higher.
Notable quotes
“I think the path is clear, now that the Justice Department has dropped its case, it's at the Inspector General, Warsh then is going to get confirmed”
“Kevin Warsh will be of the view that Fed presidents should talk less”
“I think you may see him either get rid of the dot plot or downgrade it and encourage Fed presidents to talk less”
“the odds of a Fed rate cut in 2026 are basically now near zero and the first rate cut won't be till 27”
“I would be reluctant to move until I saw demonstrable improvement in headline inflation”
How the episode opens
President Trump's pick to run the Federal Reserve, Kevin Warsh, now faces a quicker path to confirmation after the Justice Department dropped its investigation of current Fed chair, Jerome Powell, on Friday. So what are the implications for Fed policy and markets if Warsh is confirmed as Fed chair? I'm Allison Nathan, and this is Goldman Sachs Exchanges.
To discuss what we know about Warsh, his potential approaches to Fed policy, and the confirmation process ahead. I'm sitting down with Rob Kaplan, Vice Chairman of Goldman Sachs, and former president of the Dallas Fed. Rob, welcome back to Exchanges Great to be with you Allison.
Always nice to be here. So Rob, as always seems to be the case when we have you on here, there's a lot to talk about. But before we get into the policy of all of this, just wanted to level set, can you give us an update on where we are in Kevin Warsh's confirmation process and how much uncertainty is still at play there?
Regarding Kevin Warsh, I think the path is clear, now that the Justice Department has dropped its case, it's at the Inspector General, Warsh then is going to get confirmed. Senator Tillis has reiterated that, and I would expect Kevin Warsh to be in the seat for his first FOMC meeting in June. Rob, let me just ask you one more thing.
This process has seemed unusually politicized, but given all of your experience in many years of the Fed, is that actually the case? Let me tell you the parts that created some political considerations. First of all, going back into the fall, the president, you know, called for Jay Powell to step down or to leave, and there was a question whether he could fire him.
I actually think the criticism of Jay Powell on monetary policy, I think that's par for the course.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed policy
- monetary policy
- federal reserve balance sheet
- fed communications
- kevin warsh
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “How Warsh Could Shape Fed Policy” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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