President Trump’s nominee for the Federal Reserve, Kevin Warsh, could cut rates hard and quickly, an economist who correctly called Japan’s fiscal problems said on Tuesday, contradicting fears of slower liquidity easing under the incoming presidency.
Robin Brooks, senior fellow at the Brookings Institution’s Global Economics and Development program, predicts 100 basis points of cuts in the four meetings in June, July, September and October following Warsh’s appointment, he said in his latest analysis on Tuesday.
“This could be portrayed as a reset of monetary policy to recognize a lower neutral rate and far exceeds the roughly 40 basis points in cuts that markets are pricing in over this period, setting the stage for further dollar weakness,” he added.
Brooks has consistently warned of a full-blown fiscal crisis in Japan for at least a year, and the first signs of crisis emerged last month as yields on the nation’s government borrowing costs rose to record levels.
His latest forecast means the Fed’s benchmark borrowing rate could fall to a range of 2.5%-2.75% from the current 3.5%-3.75% ahead of the November midterm elections.
Current Chairman Jerome Powell’s term ends in May. Last month, the Powell-led Federal Reserve held interest rates steady in a range of 3.5% to 3.75% after cutting them 75 basis points in the previous three meetings.
This projection of aggressive rate cuts could reignite a bull run in bitcoin and the broader crypto market. Warsh’s hawkish past as Federal Reserve governor, when he stuck to his anti-inflationary stance during the 2008-09 crisis, has spooked markets into thinking rates won’t fall easily under his chairmanship, setting up another clash between the central bank and the White House. Trump has repeatedly attacked Powell for not aggressively cutting rates to 1% and killing the US economy.
The way markets have reacted since murmurs about Warsh’s presidency began circulating Thursday night reveal the anxiety. Bitcoin fell from $84,500 on Thursday to below $75,000 over the weekend, with hawkish fears from the Fed fueling major risk aversion. Gold and silver plunged 9% and 26%, respectively, on Friday, while the dollar index rose.
“Many came away from last week with the mistaken impression that Warsh will be aggressive. He can’t and won’t be. In fact, their worst nightmare is probably that Trump will turn on him like he did on Powell,” Brooks said.
Expect Warsh to cement a high-productivity, low-inflation narrative for lower rates, which is certainly possible as Warsh sees the rise of AI as a disinflationary force that increases productivity and bolsters American competitiveness.
“Improvements in productivity should drive significant increases in real take-home wages. A one percentage point increase in annual productivity growth would double living standards in a single generation,” Warsh noted in a November 2025 Wall Street Journal op-ed titled “The Federal Reserve’s Broken Leadership.”
