Washington
Kevin Warsh was narrowly confirmed Wednesday by the Senate to serve as the 17th chair of the Federal Reserve, inheriting a central bank that has long been under political siege from President Donald Trump and an economy rattled by geopolitical tensions that are driving inflation higher.
Warsh will formally succeed Fed Chair Jerome Powell, whose eight-year tenure was marked by several economic crises and a heated clash with the White House to defend the US central bank’s political independence.
Warsh was confirmed in a 54-45 vote, mostly split along party lines, with only Democratic Sen. John Fetterman of Pennsylvania crossing the aisle to vote in favor of Warsh’s nomination. It was the most partisan vote for a Fed chair nominee in history, underscoring the unease among Democrats with Trump’s fight against the Fed, though Republicans broadly welcome Warsh’s leadership.
Warsh is widely viewed as more aligned with President Donald Trump, who has long demanded rate cuts, but he is set to take office as inflation pressures intensify due to the US-Israeli war with Iran. Inflation jumped to a three-year high in April, according to the latest Consumer Price Index, and now outpaces wage growth.
The energy shock is complicating hopes for a swift rate cut, with investors now expecting the Fed to keep its benchmark lending rate unchanged for the rest of the year — or even raise rates if inflation worsens. That prospect is likely to frustrate Trump, who may direct his ire at Warsh in the same way he has done with Powell. The president even joked earlier this year that he’d sue Warsh if he doesn’t cut rates.
Regardless, the Fed chair is just one vote on the Federal Open Market Committee that considers rate moves. While Warsh would control the agenda at every Fed meeting, he would not have unilateral authority over what the majority of the committee decides. And so far, there’s a faction of policymakers with voting power who have telegraphed serious concerns with inflation.
The Warsh era at the Fed is expected to usher in several changes within the institution.
The incoming Fed chief has proposed or hinted at reducing the size of the Fed’s $6.7 trillion balance sheet; coordinating more closely with the Treasury Department on the balance sheet; cutting back on the number of policy meetings each year from eight to as little as four; hosting fewer news conferences; shrinking the size of the Fed’s Washington-based workforce; and not providing frequent hints on the path of interest rates. According to JPMorgan analysts, all those changes would be within the remit of Warsh’s power as chair.
The most challenging policy change for Warsh could be on the balance sheet. For years, Warsh has stated repeatedly that the Fed must reduce its footprint in financial markets by shrinking the balance sheet to allow central bankers to primarily rely on their traditional tool — their key interest rate — to fight high inflation and high unemployment.
After the Great Financial Crisis and again during the pandemic, the Fed bought millions of dollars of assets like Treasury bonds to support the economy, a policy known as quantitative easing.
Warsh believes that such policies undermine the Fed’s independence, since they essentially amount to backstopping the government. He argues that the central bank should speed up rolling off its trillions in holdings, which includes mortgage-backed securities and government bonds, sooner rather than later.
Trump’s search for a new Fed chair lasted several months and ended in a bruising confirmation process that was stalled for some time by a key Republican — North Carolina Sen. Thom Tillis — who demanded the Justice Department drop an investigation into Powell tied to testimony the Fed chair gave to Congress last year on cost overruns for a renovation project on the Fed’s headquarters in Washington, DC.
The DOJ probe stoked fears that the Trump administration was trying to chip away at the Fed’s independence, which would pave the way for political interference in setting interest rates for the world’s largest economy.
Powell had strongly rebuked the probe as politicized, saying in a video statement that the investigation was a consequence of broader “threats and ongoing pressure†by the administration.
The probe, led by DC US Attorney Jeanine Pirro, was eventually dropped, though Pirro said she may reopen it if the Fed’s inspector general finds evidence of malfeasance or dereliction of duty.
Warsh’s first meeting as Fed chair is set for June 16-17, with former Fed Chair Powell retaining a seat as governor for now. In his last news conference as chair last month, Powell congratulated Warsh and said he will support him in any way he can while stepping out of spotlight to let the incoming Fed chief govern.
Fed chairs usually step down from the board altogether after they are done leading the central bank, but Powell said he will stay until he determines that Pirro’s probe is fully over. The only other former Fed chair to stick around was Marriner Eccles in 1948, who stayed on the board for a few more years.
