Name: The Parable of Donald Trump’s Pick for the Federal Reserve
Uploaded: 2026-02-04T00:28:00Z
Duration: 6 min 3 s
Description: An Editor at Large: Columnist Gerard Baker draws on the tale of the vineyard owner and the two sons to explain why market reaction to Kevin Warsh’s nomination suggests he is likely to do the right thing as Fed chairman.

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An Editor at Large: Columnist Gerard Baker draws on the tale of the vineyard owner and the two sons to explain why market reaction to Kevin Warsh’s nomination suggests he is likely to do the right thing as Fed chairman. Photo: Reuters/AP/Bloomberg News

https://m.wsj.net/video/20260204/121774d4-b406-4f6f-bc04-bf38f9546827/1/hls/manifest-hd-wifi.m3u8

An Editor at Large: Columnist Gerard Baker draws on the tale of the vineyard owner and the two sons to explain why market reaction to Kevin Warsh’s nomination suggests he is likely to do the right thing as Fed chairman.

The Parable of Donald Trump’s Pick for the Federal Reserve

A familiar and favorite gospel parable is the one about the vineyard owner with two sons whom he summoned to work on his property. The first refused, but then thought better of it and went off and did as his father had asked. The second unctuously told his father that he would comply, but he didn't. He then went off and did exactly what he was planning to do anyway. Jesus offers the story as a lesson that we should pay less attention when people loudly tell us what we want to hear and more heed to what they actually do. Which brings us to President Trump's nomination of Kevin Warsh to be chairman of the Federal Reserve.

He certainly wants to cut rates. I've been watching him for a long time.

Mr. Trump being a more intimidating figure than the father in Matthew's gospel, no one in this story was willing to play the role of the defiant son. Instead, the final four candidates for the job of tending the delicate vineyard that is the Federal Reserve were a range of eager submissives, each straining to appear enthusiastic to pick up the pruning shears and start cutting rates by the bunch.

I think a lot of patriotism in the data.

Kevin Hassett, a once Orthodox conservative economist, who's become a reliable mouthpiece for Mr. Trump's wildest heresies. Rick Rieder, the BlackRock executive, who's been a consistent advocate of easier monetary policy. Christopher Waller, until recently, a mainstream Fed governor, who weeks ago insisted he was in no rush to cut rates, but submitted a last-minute bid to impress the president with a dissenting vote for an interest rate cut at a recent meeting of the Federal Reserve's Open Market Committee. And Mr. Warsh, who spent the past year berating Chairman Jerome Powell and calling for lower interest rates.

If the meeting is next week, I'd be voting for a rate cut.

Mr. Warsh joined the Fed as a governor in 2006 when I was covering the Central Bank as a reporter. It's a curiously convoluted tribute to Mr. Trump's judgment that he's ended up with the man who is probably the least likely to do what he wants and the most likely to do what is needed.

Journalist: Did you have any concerns about his hawkish history of pushing for rate hikes?

He's going to want to do the same thing. I think that, yeah, I've had times when I think you've had to really have rate hikes too. He was the central casting guy that people wanted.

A fierce opponent of quantitative easing, the Fed's policy of expanding its balance sheet by buying assets, Mr. Warsh's tight-money credentials are so solid that he expressed skepticism about QE even in the midst of the 2008, 2009 global financial crisis. Thereafter, in and out of the Fed, he repeatedly warned about the risks of rising inflation, even though the inflation rate stayed low for a decade. And in the years after COVID, he again warned that policy was too loose when inflation actually did take off.

This was a movement like nobody's ever seen before.

Gerard: Then for some reason, beginning, a cynic might say, somewhere on the evening of November the fifth, 2024, Mr. Warsh began having second thoughts. He argued that even though the Fed has failed to meet its inflation target for five straight years, policy should be looser.

Journalist 2: Did Kevin Warsh commit to you that he will push to cut interest rates if he's confirmed?

No, but we talk about it and I've been following him, and I don't want to ask him that question. I think it's inappropriate, probably, probably would be allowed, but I want to keep it nice and pure.

In an article titled, "The Federal Reserve's Broken Leadership," Mr. Warsh now argues that artificial intelligence is so dramatically increasing the productive capacity of the economy that the Fed can do what it did in the 1990s, let the economy run hotter without risking inflation. The real federal funds rate is mildly restrictive. Mr. Warsh seems to want it to be neutral or maybe even negative, but the theory is as yet untested, with little data to support it. His stance against quantitative easing is principled and consistent, but it's unclear that it'll lead to the kind of policy outcomes he and the president seem to want. He certainly has a strong case when he calls out mission creep at the Fed.

But I think what we need is regime change at the Fed, and that's not just about the chairman, it's about a whole range of people. It's about changing their mindset and their models.

He rightly says that the Fed's bloated balance sheet is distorting the economy, interfering with market signals, propping up irresponsible fiscal policy, and all the time supporting the idea of a Fed put under asset prices. But unwinding it will not only be difficult, given rising concerns about market liquidity, it also may not produce the more equitable economic benefits he says he wants. If the Fed lowers short-term rates and shrinks its balance sheet as he proposes, the resulting steepened yield curve will be a bonanza for banks and bad news, not just for holders of capital, but, for example, for anyone who wants a mortgage.

So the 2.7 is now 3.1.

I'm not aware of that.

Yeah, it just came out.

Yeah. I haven't heard that from anybody at the Fed.

It just came out.

In Matthew's gospel, the virtuous figure of the parable is the first son, the one who initially refused his father's instructions, but then went off and did what his father wanted. In today's version, the market reaction to Mr. Warsh's nomination, stable Fed funds futures, higher bond yields, and a stronger dollar, irrespective of his election night conversion, suggests the hero this time will be the one who said he would do what the boss wanted, but then went off and did exactly what he had intended to do all along.

WSJ Opinion: The Parable of Donald Trump’s Pick for the Federal Reserve

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