The consideration of Kevin Hassett for Fed Chair highlights a significant change in the expected profile for the role. Once viewed as a technocratic economist who published in academic journals, Hassett is now widely seen as a partisan political operator, raising questions about whether the Fed will be led by an independent expert or a political agent.

Former RBI Governor Raghuram Rajan points to a historical pattern preceding every major financial crisis: a U-shape in monetary policy. An extended period of easy money builds up risk, and the subsequent tightening phase triggers the collapse. This framework helps identify periods of heightened systemic vulnerability.

Figures like Mohamed El-Erian and Jason Furman support Warsh, but this backing is framed as coming from an insular "Group of 30" of former central bankers. Critics argue this elite endorsement overlooks Warsh's public track record of poor calls and partisan shifts, valuing personal rapport over demonstrated performance.

The primary economic risk for the next year is not recession but overheating. A dovish shift at the Federal Reserve, potentially from a new Trump appointee, combined with loose fiscal policy and tariffs, could accelerate inflation to 4%, dislodge expectations, and spike long-term yields.

Critics allege Kevin Warsh exhibits a pattern of partisanship, worrying about inflation and fiscal excess under Democratic presidents but pivoting to pro-growth, lower-rate stances under Republicans. This behavior raises serious questions about his political independence and commitment to the Fed's dual mandate, regardless of the administration in power.

The Fed Chair is just one vote on the FOMC and cannot unilaterally dictate policy. To be effective, they must persuade other governors and regional presidents. A nominee like Kevin Warsh, perceived as partisan and not data-driven, may struggle to build the necessary consensus to implement his agenda, rendering him less powerful than expected.

Kevin Warsh's criticism of the Fed's reliance on data is viewed as dangerous. Data provides a common, objective language for policy debate and builds legitimacy. Abandoning it in favor of subjective judgment or "vibes" could erode the Fed's credibility and open the door to politically motivated, rather than evidence-based, decisions.

While the 2008 crisis centered on commercial banks and mortgages, today's problem is rooted in the central banks themselves. The Fed's policies actively devalued US treasuries—the bedrock of the system—making this a more fundamental central banking and currency crisis, not just a banking one.

The Federal Reserve, a relatively new institution in 1929, acted timidly due to political pressure. It failed to curb rampant speculation before the crash and then hesitated to inject liquidity after, fearing it would lose its authority. This inaction, born from political weakness, was a key lesson that informed the aggressive response to the 2008 crisis.