Dem
47
GOP
53
Well, not literally. Fed Chairman Kevin Warsh was an executive director of M & A at Morgan Stanley and has a net worth of over $135 million, and probably closer to $200 million, although this is a pittance compared to his wife's $2 billion (she is the granddaughter of Estée Lauder). He is by far the richest Fed chairman ever, and has a lot of skin in the game. For 10 years his dream has been to be Fed chairman. But now he made it, and it is a poisoned apple.
Donald Trump rammed Warsh's nomination through for one and only one reason: to get interest rates down, because that is good for the real estate business. Unfortunately, inflation is shooting up, and if Warsh lowers interest rates, inflation will skyrocket, the market will tank, and Poor Kevin's investments will lose a lot of their value. He knows that. Catherine Rampell summed up his situation by saying: Warsh is very, very cooked. Here is Warsh's problem in the form of a graph:
The graph above shows the market yield on new 30-year treasuries at the initial auction and the fixed interest rate. Interest rates are not legally required to track the market, but if the Fed says "NO!" to the market, bad things happen. So, in practice, the official interest rate tends to track the market. Right now, investors think there will be inflation ahead so they want to be adequately compensated for buying government bonds. They think that 5% would be nice.
This is why Warsh's goose is cooked. If he does what his boss orders him to do (try to lower interest rates), he will discover that he is only one vote of 12 in the Open Market Committee and Jerome Powell is another. There is a good chance that the 10 other members will listen to Powell and vote to raise rates rather than lower them, to head off ruinous inflation. This will make Warsh look weak and Trump sees weakness as fatal. If Warsh's negotiating skills are better than we think they are and he gets his way, inflation will surge, markets will tank, and Trump will be furious with Warsh. If Warsh listens to Powell and the other members and holds rates steady or raises them, Trump will also be furious with Warsh. Rampell can't think of any scenario that saves Warsh's hide.
We are not economists (although V did take Economics 101 from Paul Samuelson himself, and so knows about guns and butter), but we do know something about politics. If Warsh gives in to Trump and gets interest rates down, inflation will surge and the voters Will. Not. Like. It. If you are not sure about this, send Joe Biden an e-mail and ask him. Inflation raises corporate costs, forcing companies to raise prices, which reduces sales and profits, driving the stock market down. Trump definitely does not like it when the stock market is collapsing. If Warsh defies Trump and raises interest rates, inflation may be tamed, but it could cause a recession. In 1991, after winning the Gulf War, George H.W. Bush hit the other Bush line (89% approval). In 1992, there was a recession and he lost reelection to an unknown small-state governor nobody had ever heard of. Voters don't like recessions either. It is the job of the Fed chairman to navigate these difficult waters to avoid both inflation and recession. Being constantly afraid of being indicted by the DoJ on some bogus charge because the president is furious doesn't make the job any easier. (V)