The new chair of the Federal Reserve is poised to bring a “fundamentalist” approach to monetary policy, according to former National Economic Council Director Gary Cohn.
“Look, I think Kevin [Warsh] is a very standup straight guy,” Cohn said of Warsh, the former Fed governor and Morgan Stanley executive. “What you saw during the confirmation hearing and what you saw from Kevin in the 2008 financial crisis is what you’re gonna get. I don’t think there’s a lot of shock there.”
Cohn, who served as chief economic adviser in the first Trump administration, worked closely with Warsh during the 2008 financial crisis while Warsh was a Fed governor and Cohn was president of Goldman Sachs. He suggested that investors should expect two major shifts under Warsh’s leadership that could redefine the central bank’s relationship with Wall Street.
The first major change centers on the Fed’s multitrillion-dollar portfolio. Warsh is expected to be more “aggressive” than previous chairs in shrinking the Fed’s massive balance sheet without unsettling markets, per Cohn.
“That’s a fine line to walk,” Cohn noted, explaining that while the Fed has been in a slow sell-down, Warsh likely intends to increase the speed to reduce the government’s footprint in the credit markets.
Beyond the balance sheet, the era of Fed overcommunication may be coming to an end. Cohn argued that the central bank has become too involved in what he described as “nontraditional Fed activities” over the past eight years, including climate policy and social initiatives such as DEI. “It’s not in the Fed’s mandate,” Cohn insisted, suggesting a narrowed focus is imminent.
“Kevin will be very much of a fundamentalist talking about the issues that are directly in the Fed’s core mandate,” Cohn said. This return to basics includes an overhaul of how the chair speaks to the public. He expects transparency from Warsh without being “regimented” to a strict transparency schedule.
“I think Kevin is going to communicate less,” Cohn said, noting the Fed has become too predictable, often signaling it cannot act on interest rates unless a press conference is already scheduled. This predictability, in Cohn’s view, has stifled the institution.
The Fed should have “maximum flexibility,” he added. “If the Fed needs to intervene or to surprise the market to accomplish something, they should not have had to telegraph that,” he said. This signals a potential return to the “Greenspan era,” where the Fed maintained the element of surprise to keep markets honest.
Reflecting on their time together during the 2008 financial crisis, Cohn described Warsh as “unflapped” and“unfazed” by market chaos. Even as major investment banks like Bear Stearns and Lehman Brothers were failing, Warsh remained focused on the core mission: protecting assets and keeping the financial markets functioning.
