How Scott Bessent could help Kevin Warsh get confirmed as Fed chairman

Treasury Secretary Scott Bessent is expected to help Kevin Warsh walk the tightrope as the incoming Federal Reserve chairman – pursuing a “hawkish” approach to monetary policy while also catering to President Trump’s easy-money agenda, On The Money has learned.

That’s the consensus of Wall Street executives with ties to the Trump White House who know key players in the MAGA world – including Bessent and Warsh. 

One source, an economist with ties to the Trump economic team, expects Warsh to lean heavily on Bessent – not just to get through the Senate confirmation process but also to navigate a mercurial president and his demands for lower short-term rates that the Fed controls. 

That battle of short-term rates – recently fought with the president badgering and name calling Fed Chairman Jerome Powell – led to Warsh’s appointment. It also will be front-and-center during his confirmation hearings where senators from both parties will demand some indication that Warsh won’t be a Trump puppet. 

Warsh is a so-called hawk who believes the easy money of the past Fed chairs has led to elevated prices that are a tax on the working class. He also doesn’t need to anger the man who appointed him – and who could make his job a living hell if he doesn’t cut rates.

Bessent is seen as playing a key role in helping Warsh walk that fine line.

“Warsh will absolutely keep a dialogue going with Trump, and I think that’s great, because you don’t need what we have now, a president constantly attacking the Fed chair and making it difficult for him to do his job,” this person said. “But Bessent is there as well to smooth things over and he and Warsh are friends.”

Indeed, my sources say Bessent was key in getting Warsh the Fed nomination. Both are longtime friends who share a common mentor in legendary investor Stan Druckenmiller. 

Bessent was one of “Druck’s” top traders at the hedge fund headed by George Soros, which famously shorted the pound sterling in 1992 – a trade that “broke” the Bank of England and forced it to withdraw from what’s known as the European Exchange Rate Mechanism. 

Warsh, after leaving his role as Fed governor in 2011, served as an adviser to Druck’s family office fund that invests his massive private wealth, estimated to exceed $12 billion.

They also share Trump’s ear. One reason the president ditched those sky-high Liberation Day tariffs for trade deals is that Bessent argued that they were a disaster for the economy and the markets. Warsh’s relationship with Trump, as a frequent unofficial adviser to the president in recent years, helped him unseat National Economic Council chair Kevin Hassett for the Fed appointment.

Warsh did that by signaling he would meet Trump’s demands on lower interest rates, possibly cutting the Fed Funds rate as much as a half of a percentage point once in the job. 

It was a concession worth making as far as Warsh is concerned. Interest rates on the 10-year Treasury bond, which are subject to market forces, are more important since consumer rates are pegged off those “yields,” and that will be Warsh’s focus.

To drive them down, Warsh needs to prove to the market he is in fact a hawk. That partly means reducing the Fed’s $6 trillion portfolio of debt, accumulated during the money-printing spree of the last three Fed chairs.

That so-called reverse “Quantitative Easing” will likely occur after the midterms because it will lead to some bond market indigestion and political fallout if rates temporarily rise on longer-dated bonds. 

Bessent is expected to help him argue to the president that it’s short-term pain for long term gain.This accumulation of debt acquired from the financial system since the 2008 financial crisis had the effect of adding far too much liquidity to the economy and leading to elevated prices that still haven’t abated. It’s the main reason Trump is getting low approval ratings on the economy, and the GOP faces difficulties in the upcoming midterms.

Of course, there are other political shoals for Warsh to navigate. Warsh needs to get confirmed by the Senate, and North Carolina GOP Senator Tom Tillis, a powerful member of the Senate Judiciary Committee, is saying he’s a no vote until Trump ends his probe into Powell.

Recall, the DOJ is investigating Powell for allegedly overspending on the Fed’s new HQ, the so-called “Taj Mahal on the National Mall.” Tillis thinks it’s a bogus investigation (Powell may be a lousy Fed chair, but it’s hard to believe he committed fraud by overspending on something like the rest of DC). Plus it smacks of executive interference in an independent agency.

People close to the matter say Bessent may soon advise the president to drop the Powell probe. It’s a way to get Warsh in the job even before Powell’s term ends in May, possibly getting Powell to leave the agency altogether (he has the option to stay around as a Fed governor) so Warsh can begin cutting rates as the midterms loom.

“Sure, Kevin will give Trump what he wants in a rate cut,” said one person who knows Warsh well. “But after that, he will call balls and strikes, which is why he will get confirmed.”