Understandably, all eyes are on Kevin Warsh. Since leaving the Fed as a Board governor in 2011, Warsh has been an active participant in the debate over monetary policy and the alleged “mission creep” of America’s central bank. As incoming Chair, he will now have the opportunity as a powerful insider to shape the outcome of this important debate.
If confirmed by the Senate, Warsh will be the eleventh Chair of the Board of Governors of the Federal Reserve System since passage of the Banking Act of 1935. (Prior to that, from 1913 to 1936, there were seven Secretaries of Treasury who were jointly appointed as Chairs of the Federal Reserve Board.) Most incoming Fed Chairs quickly become keen students of the history of the institution they were charged with leading. In what follows, I will focus on the historical policy records of the eight most recent Fed Chairs, from William McChesney Martin, who was sworn in in 1951, to the current incumbent, Jerome Powell, whose term expires this coming May. While Warsh will attempt to be forward-looking, the legacy of his predecessors could well shed important light on many of the monetary policy issues he is about to face.
In assessing this record, I focus on the inflation-adjusted, or “real”, federal funds rate as the metric with the longest history and greatest relevance to the transmission of monetary policy to the broader US interest rate structure and the real economy. It is measured as the “effective” funds rate less the 12-month change in the headline (not the “core”) Consumer Price Index. A 71-year history of the real federal funds rate, from 1954 to 2025, is shown on the chart below:
While Fed chairs do not wield absolute power — monetary policy is set by the 12-person Federal Open Market Committee — there can be no mistaking the strong impact they have in shaping outcomes of the debate. Dissents are rare, and when they do occur, they almost never overturn the views of the chair. Over time, each Fed chair has left a unique imprint on monetary policy — in part, reflecting the ups and downs of the business cycle, and related impacts on the Fed’s dual mandate of full employment and price stability, but also shaped by shocks such as Covid, the Global Financial Crisis, and speculative bubbles. The table below provides a more granular breakdown of the policy regimes of these eight Fed chairs from the 1950s through the present:
This granular breakdown underscores several chair-specific observations that might be helpful in providing Kevin Warsh some historical perspective on what he may or may not wish to emulate as he assumes his new responsibilities:
- Don’t listen to the White House. Among the first five chairs in our tabulation, Arthur Burns (my boss at the time) stood out with a negative real federal funds rate and a sharply accelerating inflation rate. He was politically compromised by President Nixon, and the US economy paid an enormous price for the Fed’s overly accommodative monetary policy.
- Don’t listen to President Trump. He is calling for a 1% nominal federal funds rate (currently 3 ½% to 3 ¾%) — a cut of about 2½ to 2¾ percentage points; barring a dramatic deceleration of inflation, that would push the real funds rate (currently around 1%) into negative territory at a time when the unemployment rate (at 4.4%) is very low and inflation (at 2.7%) remains well above the Fed’s 2% target.
- Avoid a “new paradigm” bet. This is what got Alan Greenspan into trouble in the late 1990s — his belief that a technology-induced productivity bonanza would allow the US economy to run hotter for longer than conventional macroeconomics suggested. This led to a succession of asset bubbles that eventually wreaked havoc on financial markets and the real economy. It is far too soon to tell if the current new paradigm of AI adoption will lead to a sustained rise in productivity that will allow the Fed to accommodate another hotter-for-longer depiction of a new high-performance US economy. Discretion may well be the better part of valor in this instance — resist an early wager on another tempting bet.
- Be wary of the liquidity trap. This happens when the nominal policy rate gets close to the “zero bound” and the Fed runs out of traditional ammunition. The problem arises when the Fed then creates new (largely experimental) tools, like quantitative easing, to stimulate a crisis battered economy — and then keeps those emergency tools in place long after the emergency has ended. All post-Greenspan chairs have endorsed this risky practice, especially Bernanke but also Yellen, and Powell. Kevin Warsh has raised these same concerns repeatedly in recent years — with good reason, in my view.
- Remember Paul Volcker. He showed courage and heroic discipline to arrest the Great Inflation of the late 1970s and early 1980s. That forced him to run the tightest monetary policy of all the modern Fed chairs. He is the leading example of why central banks need to be fierce in defending their political independence. For Kevin Warsh, who Donald Trump has showered with great personal flattery as well as policy expectations, the combination of the Burns-Volcker legacies may well be the most important lesson of all.
When drawing on history, Mark Twain, of course, always had the best advice — think more about rhymes than repetition. The same is true of the Fed and the eight chairs of the past 70+ years. All of them were well intentioned and smart. The same can be said for Kevin Warsh. But none of them were perfect, and there are plenty of hints in their imperfect experiences as to what the next Fed chair needs to be especially mindful of.