Choosing a Federal Reserve Chairman who is "willing to cut interest rates," has always been "difficult to achieve" for U.S. presidents in history!

President Trump nominated Kevin Warsh to serve as the Chairman of the Federal Reserve, aiming to promote a lower interest rate policy. However, historical experience shows that presidents' attempts to have the Fed Chair comply with their wishes are often difficult to achieve. The experiences of the last three presidents present three typical scenarios: the Chair complies with requests but leads to uncontrollable inflation; the Chair shows loyalty but cannot persuade other committee members; or the Chair turns to policy independence, ultimately implementing interest rate hikes against the president's wishes.

Trump has clearly expressed his expectations for Warsh at a recent dinner at the Washington Alpha Club. After asking Warsh to stand, he jokingly stated that he would sue him if the latter failed to lower interest rates. Considering that Trump has publicly criticized the current Chair Powell, whom he appointed, and that the Justice Department once conducted a criminal investigation into Powell, these remarks carry significant implications.

Warsh's nomination itself is situated within a context of policy tension. He has been known for his hawkish stance over the years, continuously warning that loose policies could trigger inflation risks, yet he is now nominated for expressing a tendency towards interest rate cuts to the president. Despite current inflation still being above the Fed's 2% target, this shift in stance may lead to questions about his true policy intentions within the Federal Open Market Committee.

Nixon and Burns: The Cost of Compliance

Presidents have humorously conveyed policy expectations to the Fed Chair before. When Arthur Burns was sworn in in 1970, Nixon joked that the applause from the audience was a "vote in favor of lower interest rates and more money." As Nixon's long-term economic advisor, Burns understood the president's demands:

"I respect his independence. However, I hope he can independently conclude that my views are the ones that should be followed."

Burns ultimately met the president's expectations, maintaining a loose monetary policy before the 1972 election. However, this led to inflation soaring from below 4% that year to over 12% in 1974. The Fed was forced to raise interest rates significantly, triggering a severe economic recession, and Nixon resigned during the same period due to the Watergate scandal. Although inflation eased for a time, it rebounded again as the Fed subsequently abandoned its tightening stance.

The case of Burns has become a typical warning of political interference in monetary policy. However, the experiences of two other Chairs, William Miller and William McChesney Martin, may be more instructive, as they show that even in an environment without severe inflationary pressures, the Fed Chair may still be unable to meet the president's policy expectations.

Carter and Miller: An Unmanageable Institution

At the end of 1977, Carter nominated William Miller, former CEO of the industrial group Textron, to serve as the Chairman of the Federal Reserve, hoping he would become a pragmatic leader who could collaborate with the government. However, Miller quickly encountered a cultural clash upon entering the central bank. He voted against interest rate hikes in his first few meetings, often finding himself in the minority, which rapidly undermined his internal authority.

Nancy Teeters, a former Fed governor who worked with him, recalled in a 2008 interview:

"Bill Miller had a tough time—especially in the first four or five months of his tenure—because he had no idea he needed to gain majority support. He thought he could tell us what to do, and we would just do it As a result, we were all confused, thinking: 'Huh?'

Seventeen months later, Carter reassigned Miller as Secretary of the Treasury and appointed Paul Volcker to take over the Federal Reserve. Volcker curbed inflation with aggressive interest rate hikes, but the resulting economic recession also affected Carter's re-election prospects.

Unlike Miller, Kevin Warsh had significant institutional experience when he joined the Federal Reserve. He served as a governor for five years during the financial crisis and had a deep understanding of the central bank's operational mechanisms. However, he also faced the challenge of building consensus. Former New York Fed President William Dudley pointed out:

"He is extremely composed, but it may be difficult at first for him to win the recognition of Federal Reserve staff and members of the Open Market Committee, as some of his policy ideas 'are not yet fully matured.'"

For example, Warsh voted in favor of quantitative easing in 2010 but then published a column questioning that decision just days later. Years later, when he criticized the Federal Reserve's policies as "chaotic," Minneapolis Fed President Neel Kashkari publicly rebutted:

"Kevin is truly perplexing, contradictory, supporting quantitative easing one moment and criticizing it the next."

Notably, Kashkari is a voting member of the Federal Open Market Committee this year. This past incident highlights that if Warsh were nominated, he would still face tests regarding policy consistency and committee cohesion.

Truman and Martin: A Victory for Independence

History also reveals a third possibility: even if the Federal Reserve Chair performs competently, they may still diverge from the president's expectations. This was precisely the experience between Truman and William McChesney Martin.

Before 1951, the Federal Reserve was effectively under the control of the Treasury Department. When Truman's advisors negotiated an agreement that restored the Federal Reserve's independence, the sitting chair resigned. Truman appointed Martin, a Treasury official who had participated in the negotiations. At the time, Washington and Wall Street generally believed this was merely "the Treasury changing its method of controlling the central bank," seemingly allowing the Federal Reserve to gain institutional independence, but in reality, it was being staffed with "insiders."

However, Martin made his position clear to Truman before his nomination. According to biographies, during a meeting at the White House, Truman asked Martin if he would commit to maintaining stable interest rates, to which Martin did not concede but instead pointed out that if policies were not prudent enough, he stated:

"Rate hikes may again be necessary. The market will not wait for kings, prime ministers, presidents, treasury secretaries, or Federal Reserve chairs."

Truman appointed him anyway but soon regretted it. Under Martin's leadership, the Federal Reserve continued to pursue tight monetary policies. Martin's later phrase "taking away the punch bowl just when the party is getting started" became a classic metaphor for central bank independence. In 1952, the two met on the street, and Martin greeted the president, to which Truman responded with just one word: "Traitor!"

Martin subsequently served under four presidents for a total of 19 years. His early commitment to central bank independence, along with the later case of Burns succumbing to political pressure, became deeply embedded in the institutional memory of the Federal Reserve, serving as an important reference for successive chairs when weighing policy autonomy against political expectations.

Warsh's Tightrope

During his time as a Federal Reserve governor, Warsh himself emphasized the importance of the tradition of central bank independence. In a speech about the role of the Federal Reserve in 2010, he clearly stated:

"The only reputation that the central bank governor should pursue, if they must pursue one, is to leave a mark in the history books."

Now, if Waller takes on the role of chairman, he will face a complex balancing test. Darrell Issa, a former New York Fed official and assistant to the Biden administration on economic and national security affairs, pointed out:

"He is genuinely committed to maintaining the Federal Reserve as a respected and independent institution."

Issa also emphasized that maintaining the institution's autonomy may lead to differences between Waller and Trump, putting him in a situation similar to Powell's. He stated:

"The key is how he handles this relationship privately. Once it evolves into a public confrontation, the situation will be difficult to salvage."

Last month at the World Economic Forum, Trump commented on the phenomenon of the "shift in independence" of the Federal Reserve chairman before formally announcing his candidate: "It is surprising that once people get this position, they often change." This statement not only reflects his understanding of the tradition of central bank independence but also foreshadows potential policy tensions in the future