Last Tuesday, Kevin Warsh, the nominee for Federal Reserve Chair, testified in front of the Senate Banking Committee. His responses to basic questions facts such as “did Donald Trump lose the 2020 election?” left many worried about how he would manage the independence of the Fed if appointed.
Justin Wolfers, Professor of Public Policy and Economics at the University of Michigan, joins Jen to give his take on the importance of Fed independence and removing conflicts of interest. Additionally, Wolfers recognizes how uncertain Trump has made investors and consumers as a result of his many wars waged across the globe.
Justin Wolfers is a professor of public policy and economics at the University of Michigan and a Senior Fellow at the Brookings Institution and the Peterson Institute for International Economics. Justin is also a contributing columnist for the New York Times and the host of the popular podcast Think Like an Economist.
The following transcript has been edited for formatting purposes.
Jen Rubin
Hi, this is Jen Rubin, Editor-in-Chief of The Contrarian. We’re delighted to have back with us Justin Wolfers, who is an economist at the University of Michigan. Welcome!
Justin Wolfers
Good to see you, Jen.
Jen Rubin
Good to see you, too. Kevin Warsh had hearings for the new Fed chairman, and I must admit, I was a little bit disturbed in that, first, he couldn’t answer who won the 2020 election, and secondly, he couldn’t answer Questions about some hundred million dollars worth of investments. How big a problem are those in your mind, and what does that say about Fed independence?
Justin Wolfers
Yeah, let me take on the first one. So there was an extraordinary passage where Elizabeth Warren said to him, who won the 2020 election? And he responded with word salad, nonsense and evasion. She then asked him, so… I actually think it’s a very telling moment, I’ll explain why in a moment. But I’m aware that some people say that’s political gotcha. So she followed up with a question which is not political gotcha. She asked him, can you name a single economic policy issue on which you disagree with the president. Remember, by the way, this is a president who has said that he thinks that the Fed should do whatever he says. He thinks that he should have an important voice, and he thinks that interest rates should be cut to 1%, as of right now, even as inflation is rising. And Kevin Walsh fumbled for a while, and then said, well, I do have an important disagreement with the President. He thinks I’m from Central Casting.
So, his most important policy disagreement with the president is how handsome he is. Let me… explain the economics of this. So, there’s the personal side of this, you might be offended by lying, you might be offended by obfuscation, you might think it’s important to tell the truth, to tell hard truths, to confront facts, and to live in the world as it exists. I want to put all those aside, because this is 2026, and those are things we no longer take for granted. I want to talk about the economics of it. Walsh talks a lot about Fed independence. Let me explain why it matters, and what it is.
So, here’s the usual problem with central banks, or a problem. We’re coming up to an election. the president or the prime minister, depending on the country you’re talking about, wants to get re-elected. They figure if they goose the economy, they’ll get re-elected. So they direct the Fed or other central bank to goose the economy. Creating an artificial boom that gets them re-elected. And the problem is that creates a hangover. Which is, when you create a boom, yes, you goose the economy, but later on, inflation rises. But that happens after Election Day. And so what have you done? One, you’ve distorted politics. That’s actually not so much what the economists talk about, but two, you’ve distorted the economy. Usually, we think about the Fed as trying to create fewer ups and downs. But this creates more ups and downs. It’s actually a step worse than that.
If I think that I am in a country where the Fed will raise lower interest rates to help out the government. Then, I think, That inflation’s going to be higher. I think that correctly. The story I just told is one in which they lead inflation to be higher. If I think inflation’s going to be higher, the mere fact of inflation expectations being high can create the reality of inflation being high. If I think everyone else is going to raise their prices next year, I’ll just raise mine this year. And so, a non-independent central bank both causes business cycles to go up and down more. It distorts politics, and it leads to higher inflation on average. And we have empirical evidence that that’s basically what occurs. So where’s the problem, and how do we solve this? The weak point in that link is that what you’ve got is, if you can leave politicians, or largely in charge of Interest rates like kid with dessert. They’ll overindulge. What do we do with kids and dessert? We appoint an independent arbiter, their parents, to say how much ice cream you’re allowed. An independent central bank is one that basically said, we will control where Congress says, we understand this temptation, we don’t want to make this mistake. So what we want you to do is just say no. We want you to make decisions that are in the best interest of the American people, always. Ignoring the political interests of the president. That’s what an independent central bank does. It ignores the President’s best wishes, in order to emphasize what is in the best interest of the American people.
That’s a very long introduction, but I wanted people to understand what the idea is. Because I think once you understand that idea, you understand why Walsh’s answer was so bad. Elizabeth Warren says, who won the 2020 election? Right now, you have exactly the choice that Fed independence is all about. Do I do something that hurts the President’s feelings, or not? And he chose not to hurt the President’s feelings. He thought it was more important to keep the President feeling full of himself. Than to serve any other interest. Because no other interest is served by not admitting clear facts that are in front of us. Fair enough. How do you feel right now? Realize what’s gonna happen in the first month that he’s in the job. The president is going to say inflation is not high. In fact, already, the President has used the word fake inflation.
So the question is, does Kevin Walsh, the man who’s unwilling to admit. the president lost the 2020 election. Is he going to be willing to admit The reality of inflation being high, or is he going to be afraid to hurt the president’s feelings? if he’s… In reality, just gonna track the President’s views, he’s not going to fight the actual inflation that exists. That’s a profound problem. If he’s unwilling to ever offend the president, he’s also going to lower interest rates to get the guy re-elected. That creates all of the problems that we talked about before. And one more thing, if he can’t speak truths. One of the important ways that the Fed does its work is by raising interest rates, but another is by talking. Basically, you say to Wall Street, hey, we’re going to raise interest rates in the future if inflation’s not low. And that causes the entire yield curve to move, and that’s a very, very important part of what the Fed does. It speaks And is believed. Speak softly and carry a big stick. But if you speak lies softly, No one listens.
Jen Rubin
Yes. And as she says, not a good idea to have a sock puppet as aFederal Reserve head. Certainly, that does not.
Justin Wolfers
What I’d be really interested in is when the confirmation comes up. If someone asks him if he regrets his answer. Because if he truly understands Fed independence, we all make mistakes in the head of the moment, although, to be clear. The idea that he hadn’t prepared for that question is absurd.
But if he truly understands Fed independence, he understands that his duty… not just his duty. He has to convince all of us that he will always make the choice that is in the best interest of the American people, rather than the best interest of the president. He’s been tested on it twice, he’s failed twice.
Jen Rubin
Absolutely. Now, he also has a lot of investments. He won’t say where those are, whether they’re in Trump-held businesses, or Epstein, I had a Fed chairman who has refused to disclose $100 million worth of investments.
Justin Wolfers
Here I’m going to go a little soft, and I hope I don’t disappoint you, Jen, but I’m going to give you my views. So, there’s actually two sets of issues here. One is what he will and won’t disclose, and the other is how much there is. Let’s start with what he will and won’t disclose. What I understood from the hearing, and by the way, I’m not a government ethics expert. Is there’s a bunch of questions, because he has a bunch of money, and some of it’s in where he’s not fully disclosed, but he said if he takes office, he will divest of everything. If that’s true, and I see no direct reason to not believe him, because I believe there’s a signed agreement that comes at the end of that.
It is possible for him to reconstruct his portfolio in such a way that he does not have conflicts of interest. By the way, and that’s actually what past Fed chairs have done. He’s a serious fellow, he’s wanted this job for a long time. I’m inclined to give him the benefit of the doubt. Now, I will say that the President also said that he would remove conflicts of interest from his own portfolio, and it quite clearly has not happened. So maybe one could respond that people in this administration don’t deserve the benefit of the doubt, but I’m inclined to believe that there exists a way forward.
I would hope that Senators ask serious questions, I would hope that the ethics people do their job seriously. This is not something we just hope for. People have to monitor, they have to watch, they have to hold their feet to the fire. And that’s really up to the Senate to do that, and I… I would urge them to do that. There’s a second question here, which is, yes, a lot of his investments he doesn’t keep particularly public. He also has $100 million.
Jen Rubin
Yes! Where did that come from?
Justin Wolfers
Not even where does it come from, how does that life insulate him from real economic life? So, I want to give both sides of the argument here, because they’re both right. The one that I was very drawn to, and it’s a populist argument, but I think there’s something to it, this is a guy who’s got a whole policy tool that could throw millions of people out of work. That could fundamentally change the cost of living, that changes our economy. And the thing is folks with $100 million in the bank don’t live like the rest of us. They don’t do their own grocery shopping. They’re not worried about unemployment.
This is an interesting intellectual exercise, but they don’t feel it deep in their bones. And that troubles me. It doesn’t make it disqualifying, but it troubles me. It doubly troubles me when we have a president who’s a billionaire, a Secretary of the Treasury is worth hundreds of millions, a Secretary of Commerce is—this appears to be the whole cabinet, and that they don’t understand people is not so surprising. That’s where I’m troubled. Now, let me come back and give you the other side of the argument. I remember Janet Yellen’s disclosures at the same point. Janet Yellen had $15 million worth of assets. I know Jay Powers’ worth, I think it’s roughly 100 million, it could be more. Both have been absolutely outstanding stewards, and absolutely terrific. And so it shouldn’t be disqualifying, I think that’s what history teaches me, but I think it is always worth asking, do you understand the very real human consequences of your actions? A and I’ve no doubt that Janet Yellen did.
And I think I’ve come to learn enough about Jay Powell to understand that he’s given his life over to public service in a very important way. So I don’t ever want to say you have to be this rich or this poor, this color, or this ethnicity, this tall or this fat to hold public office. But at some point, we’ve got to wonder about how much of our governance has to come from the super-rich.
Jen Rubin
And you do wonder, given this president and the appalling corruption is going on, whether Kevin Warsh was part of that. Was he buying up crypto to get on Trump’s good side? Was he ingratiating himself in other ways? But I suppose we’re not going to find out. He’s going to divest of that, and we’ll go forward.
Justin Wolfers
For what it’s worth, there’s nothing in his background that leads me to worry that he was directly corrupt. There may well be investments that I think are not socially productive, investments in sort of graft-adjacent industries, and that seems to be the easiest way to get rich these days.
Jen Rubin
Yes, absolutely. Let’s switch gears a bit, to the Iran war, which is not on, and it’s not off. The Strait of Hormuz is not allowing ships to pass. And so the oil is rising? Gas is a buck more a gallon? Maybe it’s gonna go higher. We’re hurt, but our allies seem to be really hurt, like in Asia, where they’re having shortages, and it really impacts their economy. What does this mean going forward, in terms of the uncertainty, in terms of having our trading partners, our customers around the world, be economically hobbled?
Justin Wolfers
Yeah. Well, partly I’m just dismayed. So let me tell a lighter story. I remember last time I was hanging out with my father-in-law. We had dinner, we decided to watch a TV show. It was a good episode. At the end of that, I got up. Put the kids to bed, did a few things. I came back out a little later, and the TV was still on. He was under the next episode, but he’d fallen asleep in front of it. He’s older than me. It’s okay. Sometimes we do fall asleep in front of the TV. I can’t help but feel that the president fell asleep in front of the Iran war. Got bored, moved on. Maybe that’s unfair? But maybe it’s fair. And if it is fair, the injustice he’s done to so many people. So, this is not an economic perspective. It’s a human one.
That you could leave people in the Middle East with their lives upside down, but on pause while you have a nap. People throughout the American economy who are oil-dependent, who are trade-dependent, they’re waiting for a resolution. You’re absolutely right to point out that because the US is roughly oil-independent, the economic effects of this war, and we’re a long way away from the Middle East, the economic consequences of this war are far smaller here than they are throughout the rest of the world, where it’s causing very real pain and very real disruption.
As a purely moral statement, if you’re going to start a war. Maybe the first most important thing is winning, but the second most important thing is doing whatever you’re gonna do quickly. And so I think there are immense costs being borne by what looks from the outside to be dawdling. Now, I said looks from the outside to be dawdling. I’m not inside. Maybe there’s people in the Situation Room all day, every day. But as far as I can tell, there was, like, you know. We sent them a message, and they left us on red, and so then we said we weren’t going to their house, and then they went to a friend’s house, but we refused to go to the friend’s house, because we’re worried that the friend would—I have a teenage daughter already. I don’t really think this is how we should conduct ourselves.
The idea that we’re hosting the king rather than solving things in Iran, that we’re building a ballroom, that we’re addressing a White House Correspondents’ Dinner, that any of those things are more important than resolving a war. Of choice that we started is a moral affront, I’ll start there, but also economically foolish. I do want to point out that when this started. I think I came on your pod for this? If not, a video, in which I said wars are never as fast, never as cheap, never as easy as they’re purported to be. And we were promised 4 to 6 weeks, and we’re well beyond that right now. And when my assignments are late, I tend to actually stay up even later. And the more late they are, the harder I work, because the worse I feel. I am somewhat dismayed that we’re doing almost nothing to get this solved. I don’t know if any of that answers your questions, Jen.
Jen Rubin
Yes, let me, ask about one part of that. We have the very real inflation, that is. Gasoline is more expensive, that trickles through the entire economy. There’s also this lingering uncertainty. We’ve talked about uncertainty before. Uncertainty in tariffs, uncertainty in just about everything he does and says. How does that… affect business decisions, and frankly, the Fed, who’s ever in charge of the Fed going forward, do they wait and see? Do they just assume we’re going to be in upward-pressured prices for the near future? What do they do?
Justin Wolfers
Yeah. So, look, here’s the very simple logic of why economists care a lot about uncertainty. You’ve probably heard people say consumers are 80% of the economy. That’s true, but consumers are actually only a small part of the ups and downs of the business cycle. If you want to understand the ups and downs, you need to think about investment. Investment is when companies decide to open a new branch office, buy new machines, buy the staff new laptops, all of that. The thing about investment is, if someone comes to me and says, maybe we should expand our chain into a new suburb. I could say yes or no. But I always have an incredibly compelling third option. Which is, I’m not quite sure, let me wait. Let’s wait out the troubles.
And so, as soon as uncertainty’s heightened, and you think there’s going to be resolution of that uncertainty, then waiting a few months to see what happens. If I were in plastics, which relies on oil, I wouldn’t be expanding the factory this month. I’d be saying, let’s wait and see what happens in the Middle East. And originally, I would have said, let’s wait 4 to 6 weeks, because that’s what we’ve been promised, but of course, now we’re at 6 to 8 weeks. So that’s the fundamental logic of why uncertainty’s so problematic. They’re uncertain.
Then there’s a deep question about what to be uncertain about. So I think the genesis of your question was, oh, there’s war in the Middle East, how long will this go? How aggressive will the United States be? Will this cause extra pressure in the Middle East? What’s this going to do to the global economy? That’s one set of issues to think about. Really important, by the way. But I want to put it in a different context, right?
Let me just draw you a timeline. On January 6th. The president was part of a movement that attempted to overthrow a duly elected government. In 2025, the president started a global trade war, which is ongoing. In 2026, the president overthrew the leader of Venezuela, threatened to overthrow the leadership of Canada, threatened to go into Greenland and forced troops to go there to defend it, and then started a war in Iran. The question is not so much And has talked about going into Cuba. So, now, if you put that time series together. 25 is a global trade war, and 26 is U.S. imperialism. What is 2027? Honestly, I don’t know. I mean, none of us thought, when the president came to power, the first thing he’d do is start a trade war with Canada. No one thought that.
None of us thought that the president who’d run an election campaign with real promises would talk about suddenly integrating Canada into the United States. I don’t know what 2027 holds. But I do know, in any previous presidency, I would have said, well, maybe it’ll involve a tax cut, or maybe there’ll be a new Fed chair, or maybe there’ll be extra spending on education. It would have been within this very narrow range, but now… I don’t know. And it’s a much broader range. Are we walking down the path to authoritarianism? How much further down that path are we walking?
There are serious people, I don’t want to sound like a conspiracy theorist, but there are serious people who have real questions as to what’s going to happen on election day. On and on it goes. So, the US was one of the greatest places in the world to invest, because we had a stable system, we had the rule of law, we have a democracy, we have courts that work, we have a government that does what the courts say. Great place to invest. Will it be that? These are genuine questions, okay? And so that’s a whole different scope of uncertainty than, I’m worried about what’s happening in Iran right now.
And then I want to add one more word to the conversation, and then I’m going to stop talking like I’m an overconfident, middle-aged man who never lets you get a word in there twice. Which is, is the question here uncertainty, or is it competence? Is the feeling and the pit of stomach whenever I feel that feeling, I’ve always called it uncertainty. I’ve called it fear. But is it actually uncertainty? Or is what we’re in the midst of a crisis of competence? Folks who start a war and then fall asleep in front of the television. I am increasingly of the view that it’s competence. And what we’re learning every year is about competence, competence combined with overconfidence. And that’s a very dangerous combination.
Jen Rubin
Indeed. And I would just add one other small element, which Brian has been sitting in the wings, saying, much more stable. Don’t have problems with us! You can buy solar panels from us, because unlike those crazy Americans, we understand there’s a green economy. We can help you reconstruct the Middle East. Does this give China a big argument to say. You sick of those crazy Americans? Come talk to us. Now, countries may not buy it, there’s a high price for doing business with China. But it makes that argument more credible, doesn’t it?
Justin Wolfers
Yeah. So, let me give you a hopefully subtle response, because I buy some of it, not the rest, and that’s the joy of talking with you, Jen. Yes! So, some people see the world as competition between great powers, and I think that was the underlying framework Behind what you just said. The people who see the world that way often are foreign relations guys, and I’m not one. So let me just concede, there may well be a great powers argument that if we win… that if they win, we lose. And that was the frame of the question. As an economist, though, I’m actually led to remind you that we all do better when we all do better.
When China becomes more efficient at stuff, that provides more options for Americans. When we become more efficient, it provides more options for the Chinese. Their success can be a huge part of our success. The move of the Chinese workforce from rural areas to the cities is what gives us the workers that screw the screws into the iPhones that we design. As an economist, my habit is never to cheer against anyone else. Because I tend to think in win-win terms, rather than dividing a fixed pie, I want to grow the pie. Is there a middle ground between great powers versus we all want to succeed together? I think there is something really important. Which is, it’s not just about China, it’s people all around the world, which is, if I want reliable trading partners, if I want to make sure that the supply of goods continues no matter what the president’s mood, if I want to make sure that whatever the law is today, it’ll be the law tomorrow, whatever the tariffs are, whatever the conditions are, where do I want to do business? And we have shown ourselves to be the unsteady one, the unpredictable one, and in some sense, the hungry one, the greedy one, the one who wants to scoop a piece of someone else’s pie. If that’s the case, maybe I’m better off cooperating elsewhere.
And you are seeing both very high-level discussions in almost every country that I’ve been tracking, where they’re thinking about how can we make our economy less reliant on an American political system that’s given enormous swings. And who are better friends? And you’re actually seeing them not just discussion, you’re actually seeing movement towards trade deals, closer relations, and so on. And so, it may be in our attempt to prove we’re the biggest gorilla in the room, everyone just goes off to a different zoo and plays together without us, and we’re left alone in our cage. That’s a mixed metaphor, isn’t it?
Jen Rubin:
Yeah, you know, I’m a British soccer fan. And I…
Justin Wolfers
Who’s your team?
Jen Rubin
Man City, I guess? You know, they got a chance. I’m not gonna root for Arsenal, God knows, so they’re collapsing. But I keep thinking, watching this administration, own goal, own goal. How did we get to be this colossus? Stability, rules of the road, free trade, a place where immigrants want to come? Physical stability. We are just burning those one after another, and it is all so unnecessary. So, I guess, on a big picture, I would ask does it strike you the same way that we are—this doesn’t have to be—we are setting ourselves on fire. We’re kicking the ball on our own goal over and over and over again.
Justin Wolfers
Yes. So that’s why I used the word confidence earlier. I think we’re just doing a bad job. Like we’re making bad choices. We have an administration that’s under-informed that does not value expertise. It may or may not have political expertise, I’m not sure. They certainly won an election. They may be about to lose one. There’s a deep question what’s going on in the American electorate that would lead us here. We are the people who elected these folks. Let’s put that aside for another day.
I think there’s two ways of making your point, Jen. One is, you and I are not from the same part of the political spectrum from what I know of you, at least. Mate, why don’t you describe where you come from, and I’ll describe where I come from, so I’m not speaking for both of us.
Jen Rubin
Well, if, a conservative is liberal who’s been mugged, I am a liberal whose conservatism got mugged. Put it that way. So, I think of myself as a free marketer, but with proper regulation and concern for the average human being.
Justin Wolfers
Historically, I would have voted on the opposite side from you. And so the reason I want to just say that out loud for your audience is. I think between us, we probably… most of the American population is somewhere between the two of us, and we historically would have been thought of as being from different sides of the political spectrum, yet I agree with everything you said. And I think that’s the point here.
And I want to point out where we are in this very unusual moment. You are a Conservative I admire. Because you’re a conservative, which is very different than being a Republican. And so, I want to point out the team that is Team Blue right now—Let’s just call it a team and a color, because that’s all that they are—The Republican Party, Republican, literally, means not a monarch. So, the Republican Party is no longer Republican. The leading conservative Party, the Republican Party is no longer conservative, in no meaningful sense. The most conservative force in American politics right now is the Democratic Party. The party that historically was pro-market, that was another one of the beliefs she just suggested. Historically was pro-market, the party of Reagan. Has become the most interventionist government of my lifetime.
If you’re pro-market today, you’re a Democrat. A party that historically was pro-trade. is anti-trade. The party that was laissez-faire. Is no longer laissez-faire. So, what had been every essential core value Is no longer there. What a moment. But I do think that those who walk around calling themselves Team Blue and pretend there’s continuity ought to spend a moment with both reality and their conscience.
Jen Rubin:
Yes, well put. We live in strange times. It’s always delightful to talk to you, I always learn something, and our audience does. So, thank you much, as always. We will look forward to having you back. Maybe the war will actually be over next time we speak. Maybe we better put that date a little far out in the future. I don’t feel we’re on the cusp of that yet
Justin Wolfers
Your booking Producer’s gonna call me for 2032.
Jen Rubin
God willing, not. But in any case, thank you so much, Justin. We’ll enjoy seeing you next time. Take care.
Justin Wolfers
Great choice, Jen, thank you.
