Foreign Media Criticizes Fed Chairman Warsh, Korean Media 'Positive': AI Relies on Rate Cuts for Growth
Contrary to the harsh criticism from foreign media regarding the nomination of Kevin Warsh as Federal Reserve Chairman, Korean media outlets have been overwhelmingly positive.
The Korean media's one-sided support for Warsh's nomination appears to stem from his claims that "AI can lead to inflation-free economic growth" and his reliance on interest rate cuts.
The Justice Department's release of emails about Epstein includes Federal Reserve Chairman nominee Kevin Warsh, Google co-founder Sergey Brin, and NFL New York Giants co-owner Steve Tisch, who all have explicit accounts of Epstein's sexual encounters with women.
The Associated Press (AP) reported, "He suggested that inflationary pressures would ease because technologies like AI would lead to higher productivity," and "His 'bet' that AI would lead to growth without inflation closely aligns with Trump's own belief that inflation has already collapsed and that AI deployment will drive growth this year.
Warsh wrote, "AI will be a significant inflation-mitigating factor, boosting productivity and strengthening American competitiveness," criticizing him as a "bettor."
Nobel Prize-winning economist and City University of New York professor Krugman wrote “No, Kevin Warth Is Not Qualified” in the title of his book “Bad Heir Day at the Fed,” and Jason Furman, a professor of economic policy practice at Harvard University, said in an interview with the New York Times that “he focuses more on criticism than on explaining his alternatives,” and that “I have no idea what to do with the criticism that the Fed relies too much on models and data.”
In an evaluation of him by the NYT Opinion editorial director in a public conversation with three economic experts, Natasha Sarin, a Yale law professor and founder and president of the Yale Budget Institute, said, “Warsh’s biggest criticism of the Fed—that its balance sheet has grown too large since the financial crisis—is frankly illogical.”
She added, “Reasonable people can argue about the optimal size of the Fed’s balance sheet, just as they argue that low interest rates are the cause of a lack of corporate investment (in fact, the opposite is true), but trying to change it too quickly would undermine financial stability. Incidentally, shrinking the balance sheet by selling mortgage-backed securities would cause mortgage rates to rise.”
Professor Furman said, “Ironically, Warsh promised to ‘shrink the balance sheet,’ which likely means selling mortgage bonds.” However, the Trump administration recently announced its opposition to purchasing $200 billion in mortgage bonds to keep mortgage rates low. It will be interesting to see what happens when Warsh’s deeply held belief in the need to shrink the balance sheet clashes with the realities of how financial markets react.”
“This illustrates the debate over zero interest rates and quantitative easing mentioned earlier,” said Oren Cass, chief economist at the conservative economic think tank American Compass. “Attempting to address immediate economic challenges through the balance sheet inflates asset prices in the short term (which can discourage corporate investment; speculation doesn’t necessarily mean creating anything), and puts the Fed in a position it cannot easily recover from in the long term.”
Cass writes and publishes the newsletter “Understanding America.” He continued, "I don't want to solve this problem overnight, but weighing the different directions and costs and benefits would be helpful." He added, "As Jason (Harvard Professor Furman) pointed out, this bill clearly opposes the purchase of $200 billion worth of mortgage bonds."
Yale Professor Sarin responded, "While it's fine to debate the optimal size of the balance sheet, I don't recommend throwing the baby out with the bathwater, and I hope Wish (Fed Chair nominee) doesn't want to do that." "Away from QE (quantitative easing) as a monetary policy tool would mean giving up a crucial tool for effective crisis response by central banks."
Professor Krugman, in his article "Bad Heir Day at the Fed," The latter part of his article posted on the online newsletter Substack is copied verbatim. He outlined five reasons for this.
The latter part of his article is reproduced verbatim.
<Wash's most notable role in the policy debate came immediately after the global financial crisis, when, as a Federal Reserve Board member, he strongly opposed the Fed's efforts to stimulate the economy. As I noted at the time, his arguments were confusing and inconsistent, but he implied (though not without clear language) that Fed actions would cause inflation despite the economic downturn.
He was completely wrong. Everyone makes wrong predictions these days. But when they do, you have to admit your mistakes and learn from them.
Wash didn't do that. Instead, he continued to invent new justifications for "calling for higher interest rates"—especially the outlandish claim that low rates hurt corporate investment—so how did someone with such a record end up in one of the world's most important economic positions? (Of course, I believe Wash is one of the least influential Fed chairs in history.)
I'll list five reasons, in no particular order:
First, Wash married into a large, wealthy family. Specifically, he married the daughter of cosmetics billionaire Ronald Lauder, who, oddly enough, is a key figure in Donald Trump's obsession with Greenland.
Second, he's always been adept at connecting with influential people.
Third, he's an effective braggart. Sorry for the technicalities, but I can't think of a better word.
When you listen to Warsh's economic policies, he throws around a lot of difficult words that might sound impressive to the uninitiated.
But there's no coherent argument behind those words.
Fourth, he's a Republican loyalist, always willing to hit the economic brakes when Democrats are in power and then accelerate when Republicans are in power.
Fifth, as highlighted in the Truth Social post screenshot at the top of this article, Donald Trump thinks he's suited for the role.
This is a humiliating day for the Federal Reserve.
The Fed has always prided itself on its expertise and has earned great respect worldwide. But even the Fed cannot fully protect itself from the chaos engulfing the United States.
Professor Krugman's note reads:
The Fed is a republic, not a dictatorship; key decisions are made by committees, where the chairman has only one vote.
Fed chairs can only guide policy through persuasion, and Wash lacks the intellectual and moral credibility to act effectively in that regard.
But if we enter a crisis that requires decisive Fed leadership, as Fed Chairman Ben Bernanke demonstrated during the financial crisis and Jay Powell demonstrated in the face of Trump's attacks, then God help us.
Absent a crisis, most of Wash's colleagues will largely ignore him, but they will not openly express their contempt.
Even a coalition of Trump-appointed board members—Wash, Bowman, and Miran—will not be enough to overturn the other board members' responsible management of monetary policy.
But that's a low bar, and perhaps lower than is generally recognized.
While I don't think Wash will do much damage to monetary policy, he, along with fellow Trumper Michelle Bowman, Vice Chair of the Financial Supervision Committee, is likely to undermine the Fed's financial regulatory role.
As of this writing, many media reports are portraying Wash as a financial hawk.
That's a category mistake. Wash is a political animal. He opposes any attempt to stimulate the economy and demands austerity measures if the Democrats take control of the White House.
Like all Trump supporters, he has supported rate cuts after November 2024.
Depressingly, some Democratic economists are stepping up to reassure us about Wash's credentials. This is reminiscent of the enthusiasm many economists had for Kevin Hassett's selection as chairman of the Council of Economic Advisers in 2017.
Although he was clearly a ridiculous swindler. Since then, Hassett-Wish has surpassed my expectations and revealed himself to be a ridiculous sycophant. Even Trump realized that nominating him to the Fed would be a public relations and financial disaster.
Independent economists who don't feel the need to maintain good relations with the corridors of power are being quite candid about Warsh's nomination. Here are some reactions I received on my feed:
The Chosun Ilbo reported on the 30th that, "Of all the candidates nominated for chairman, Warsh has been categorized as the most cautious on interest rate cuts," and that, "In particular, during his time as a Fed director, when the Fed implemented quantitative easing (increasing the money supply) by purchasing large amounts of Treasury bonds and mortgage-backed securities after the financial crisis, he opposed quantitative easing in a 2010 Wall Street Journal op-ed, arguing that "quantitative easing has a limited impact on the real economy." His resignation in 2011, seven years before his term, is interpreted as being related to this."
The Chosun Ilbo continued, "Upon news of Warsh's nomination as the next chairman, the dollar index, which measures the value of the US dollar against a basket of six major currencies, rose slightly." This reflected expectations that Warsh would be less likely to lower interest rates than other candidates. However, Warsh has recently been known to align with President Trump and strongly advocate for rate cuts. The New York Times reported, "Warsh has publicly supported the need for rate cuts, arguing that tariffs will not lead to persistently high inflation."
The Chosun Ilbo continued, "Warsh has served as an outside director of Coupang since October 2019. Upon joining the board, he stated, "Coupang is a company at the forefront of innovation." He is a Harvard alumnus of Coupang Chairman Kim Beom-seok. As a Federal Reserve board member during the 2008 global financial crisis, he was indirectly involved in the decision to bankrupt Lehman Brothers. As a policymaker from Wall Street, he was considered a 'bridge between Wall Street and the Fed.'"
The Hankyoreh reported on the 30th, “Coupang Outside Director Kevin Warsh Nominated as Next US Federal Reserve Chairman.
The headline read, “Trump Nominates Former Fed Director Warsh, Currently Serving as Outside Director of Coupang I&C, Inflation Hawk but Recently Advocated for Interest Rate Cuts,” and the subheading read, “Reuters also reported that Warsh met directly with President Trump at the White House that day and left a deep impression on the President.”
The Hankyoreh reported, "The market still classifies Wash as one of the most hawkish candidates for Fed chairman, evaluating him as "fundamentally more focused on inflation and reducing the Fed's balance sheet." Bloomberg assessed that the market perceives Wash as "a slightly more hawkish candidate than Powell." Therefore, it's unclear whether Wash, Trump's choice, or his demands for interest rate cuts are fully accepted. Since he's closer to a traditional conservative central banker, the key question going forward will be whether his actual interest rate and asset purchase policies will be as lenient as Trump expects, or whether he will place greater emphasis on inflation and Fed independence. The New York Times commented, "The key question going forward will be whether Wash will actually loosen his policy toward interest rates and asset purchases as Trump expects."
SBS reported on the 1st that, “Contrary to Professor Krugman’s sharp criticism, many experts, including key figures on Wall Street, have positive evaluations of candidate Wash,” and “In particular, the consensus on Wall Street is that Wash is a ‘safe choice’ compared to other candidates on the ‘short list.’”
Reuters reported on the 30th, under the headline, “Wash ‘regime change’ faces slight obstacles against broad-based US central bank,” that “It remains unclear how quickly and deeply he will cut rates, and how aggressively he will pursue ‘regime change’ at the Fed,” and that “Trump has demanded a rate cut, perhaps equivalent to a crisis level of 1%. This would be an overly aggressive goal for Wash, an inflation hawk who served as Fed president from 2006 to 2011, and economic data and the views of his 18 policy colleagues could make it impossible.”
continued, “The Fed’s massive balance sheet has been a particular focus for Wash,” and that “He opposed some of the ‘quantitative easing’ implemented during his tenure at the Fed and supported Chairman Ben Bernanke in a public vote, but ultimately resigned partially in protest. His hands may be tied, too.”
Reuters reported, "The balance sheet is now inextricably linked to the Fed's interest rate controls, providing dollar liquidity to banks and the world. Unless that changes, there's a limit to how far it can shrink."
Retired Atlanta Fed President Raphael Bostic told CNBC on the 30th that "the size of the market 'footprint' critics point to is appropriate," adding, "As the economy grows, the balance sheet should grow with it."
The Associated Press was more critical. The following excerpt from the article reads:
In recent months, Warsh has actively campaigned for the Fed post, appearing in television interviews and articles. He has become much more critical of the Fed, calling for "regime change" and criticizing Powell for his involvement in issues like climate change, diversity, equity, and inclusion, which Warsh said fall outside the Fed's purview.
In a July CNBC interview, Warsh said Fed policy has been "broken for quite some time." He said, "The central bank we have today is fundamentally different from the one I joined in 2006." By allowing inflation to surge in 2021-22, the Fed "has made the biggest macroeconomic policy mistake in 45 years and has divided the country."
In a November Wall Street Journal op-ed, Warsh argued that the Fed "must abandon the doctrine that inflation occurs when the economy grows too much and workers earn too much."
Inflation, however, occurs when the government spends too much and prints too much (money).
He suggested that inflationary pressures would ease because technologies like artificial intelligence would lead to increased productivity.
His "bet" that AI would lead to growth without inflation closely aligns with Trump's own belief that inflation has already collapsed and that AI deployments will drive growth this year.
"AI will be a significant inflation-mitigating factor, boosting productivity and strengthening American competitiveness," Warsh wrote.
Lee Jae-myung's regime's securities firms have been implementing a KOSPI 5000 strategy based on the doctrine of "economic growth without AI inflation" and a strategy of "stock market rises based on repeated reports predicting U.S. interest rate cuts under the Trump administration."
President Lee has formalized a policy of resolving polarization through AI economic growth by expanding the money supply at lower interest rates, and is operating a control-order economy for real estate in a stock market surge strategy due to an expansion of the fiscal deficit. As the interest rate cut under the Trump regime relies heavily on Wash's ideology of 'AI high growth without inflation', it is exposed to the possibility that the roots of the economic system will be shaken by rising interest rates.
AI growth, interest rate cuts, bettors, balance sheet, Federal Reserve, Kevin Warsh, low interest rates, loyalists, Krugman, Korean media, doctrine