The richest Federal Reserve Chair in history? The three challenges Kevin Warsh is about to face

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Author: Bibi News

On April 21, 2026, before the hearing began, Kevin Waugh’s financial disclosure documents were released in advance.

His investment portfolio exceeds $130 million, and if he succeeds in taking office, he will be the wealthiest Federal Reserve Chair in history. His current holdings include DeFi lending protocols Compound, derivatives platform dYdX and Lighter, as well as direct positions in four blockchains: Solana, Optimism, Blast, and Zero Gravity.

This is the candidate for Federal Reserve Chair nominated by Trump, making his first public appearance in policy circles after 15 years. Compared to his promise to sell off these holdings, the market is more concerned with how he will lead the Fed out of the three major challenges he has personally outlined during his term.

Can the premise for rate cuts hold?

From 2006 to 2011, Waugh served as a Federal Reserve Board member for five years, known for his inflation-prioritizing stance.

During the worst of the financial crisis, with unemployment exceeding 10%, he still publicly warned of rising inflation risks 13 times at FOMC meetings.

In 2010, he was the most vocal opponent of the second round of quantitative easing. When he resigned from the Fed in 2011, it was to oppose unlimited asset purchases.

But the shift began in 2025. In May 2025, he stated in an interview: “We are at the forefront of AI use cases; everything touched by technology will become cheaper.”

By November, he directly defined AI as a significant disinflation force in a column in The Wall Street Journal, capable of boosting productivity and enhancing American competitiveness.

From late 2025 to early 2026, he repeatedly emphasized on multiple podcasts and interviews that AI is “the most productive wave of our lifetime,” and frankly said: if the Fed waits for official data confirming productivity gains before acting, it will be “already too late.”

Democratic Senator Elizabeth Warren attacked him at the hearing, using the term “flip-flopping” and claiming he was catering to Trump.

Waugh responded by citing the case of Greenspan in the 1990s: from 1995 to 2000, U.S. nonfarm labor productivity grew at an average of 2.5% annually, nearly double the 1.4% over the previous eight years; non-financial corporate sector output per hour grew at an average of 3.5%.

At that time, the labor market was extremely tight, with unemployment at decades-low levels, yet core inflation remained below 2%, not rising in tandem with economic growth. Greenspan chose not to tighten policy hastily, ultimately achieving both economic growth and price stability.

Waugh believes he is making the same judgment now; AI is this round’s internet.

However, this judgment faces severe real-world pressures. In March 2026, the CPI year-over-year rose to 3.3%, up from 2.4% in February, the highest since May 2024; core CPI rose to 2.6%. Tensions in Iran pushed energy prices higher, with gasoline up 18.9% month-over-month and fuel oil up 44.2%, directly driving the largest single-month inflation increase since June 2022.

He also admitted at the hearing that current inflation data “still has work to do,” while refusing to provide any specific rate path or timetable.

Eroding independence

At the start of the hearing, Warren used the term “puppet” in her opening statement, citing Trump’s recent social media statement that “Kevin’s rates will fall after taking office,” and repeatedly asked: Have you promised the President a specific rate path? If inflation rises again, can you resist pressure from the White House to cut rates?

Waugh responded that the President has never asked him to preset, promise, or fix any rate decisions in any conversation, and he would not make such commitments.

He said independence is not an automatic legal firewall but something the Fed earns by steadfastly maintaining price stability and avoiding overreach. If the Fed keeps making mistakes and overstepping, public and political scrutiny is a reasonable cost; independence can be eroded from within, and political pressure is just an external factor.

He characterized the inflation of 2021-2022 not as a simple mistake but as the result of the Fed using its credibility to endorse fiscal expansion and actively blurring the boundaries between monetary and fiscal policy. This, he says, is the real crisis of independence—not caused by Trump, but by the Fed itself.

This logic was already formed in 2010. He delivered a speech titled “An Ode to Independence,” which was later echoed in interviews at the Hoover Institution and columns in The Wall Street Journal, centered on the same judgment: the greatest threat to the Fed is not external political pressure but its own gradual erosion of institutional space.

The test of independence is not only from Trump himself. Senator Thom Tillis of the Republican Party announced on the floor that he would delay support for Waugh’s confirmation. The reason is not doubt in Waugh himself but that the Department of Justice is investigating current Chair Powell for criminal conduct, ostensibly related to overspending on the Fed’s headquarters renovation.

Both Powell and a federal judge believe this is political pressure targeting monetary policy. Tillis’s stance is that pushing forward with confirmation under this shadow has politicized the process. This means Waugh’s confirmation timetable is stalled, unrelated to his responses on the floor.

Can balance sheet reduction and rate cuts proceed simultaneously?

Waugh’s view on the balance sheet has been consistent since he left the Fed in 2011, representing his most stable stance over the past fifteen years.

He describes the Fed’s current roughly $6.7 trillion balance sheet as “bloated.” Quantitative easing, initially a temporary emergency measure during the 2008 financial crisis, has become a semi-permanent tool over the past decade, leading to two structural consequences:

The boundary between monetary and fiscal policy has become blurred, with the Fed effectively taking on some fiscal functions; large-scale asset purchases have systematically driven up financial asset prices, benefiting stock and real estate holders, while ordinary households have not gained equally.

Therefore, this balance sheet must be significantly reduced, with an emphasis on cautious, orderly, and well-communicated tapering to avoid unnecessary market shocks.

This creates a somewhat unsettling scenario: he might pursue both balance sheet reduction and rate cuts simultaneously—withdraw liquidity from assets while signaling easing through lower rates, two opposing forces acting on market pricing.

His explanation is that interest rates should once again become the primary tool of monetary policy, while asset purchases revert to a crisis-era emergency role, pulling back the misused tools and restoring the effectiveness of the appropriate ones.

After the hearing, U.S. Treasury yields rose, reflecting market uncertainty about this mixed scenario.

He also mentioned a specific reform idea: launching a real-time price tracking project at the billion-dollar level to replace the current CPI framework, which relies on lagged sampling.

Reducing the frequency of officials’ public rate forecasts, because once forecasts are made, officials tend to stick to them to maintain credibility, even if circumstances change—this is a source of sluggish response. He envisions a “system switch,” a policy shift that is not just tweaking one or two parameters but a fundamental change.

He also mentioned that stablecoins and on-chain price data could become more real-time supplementary indicators to address the shortcomings of the current statistical framework.

This reveals his deeper logic on crypto: not just an asset class needing regulation, but an information infrastructure that can improve policy judgment quality. His $130 million holdings might also be understood from this perspective.