The Senate confirmed President Donald Trump’s nominee to lead the Federal Reserve, Kevin Warsh, bringing new leadership to the world’s most powerful central bank at a fraught moment for the global economy.
Warsh, 56, a former top Fed official, was confirmed Wednesday in a largely party-line 54-45 vote and will replace Jerome Powell as chair at an unusually difficult time for the independent agency.
Inflation has topped the Fed’s 2% target for five years and is now rising faster because of spiking gas prices. The Fed’s interest rate-setting committee is divided and saw the most dissenting votes in more than three decades last month. And Powell, after years of personal attacks from Trump and an unprecedented Justice Department investigation, plans to remain on the Fed’s board even after his term as chair ends, potentially creating a competing power center.
Senate Majority Leader John Thune, R-S.D., said in a floor speech that it’s critical that a Fed chair “understand not only the macro” but also “appreciate the microeconomy: and that’s the hardworking Americans, their jobs and their livelihoods.”
“Kevin Warsh is just such a person,” Thune said.
Trump has demanded change at the Federal Reserve
The Fed has faced threats to its independence from Trump, who has repeatedly attacked Powell for not cutting interest rates. Trump also sought to fire Fed governor Lisa Cook and launched an investigation into Powell’s Senate testimony about a building renovation.
The probe of Powell had threatened to derail Warsh’s nomination, as Republican Sen. Thom Tillis of North Carolina vowed to withhold support until the investigation was terminated. The probe was ultimately dropped in April. Every Republican voted for Warsh on Wednesday, as did Democratic Sen. John Fetterman of Pennsylvania.
Kevin Hassett, director of the White House’s National Economic Council, said in a Fox News interview on Sunday that he believes the markets are relieved that Warsh “is going to help lower interest rates over time.”
“Obviously, data driven,” said Hassett. “I’m not putting any pressure on Kevin Warsh.”
In December, Trump said on his social media platform that he wanted a Fed chair who would cut interest rates when the stock market rose — the opposite of what traditional economics would prescribe — and added, “Anyone that disagrees with me will never be the Fed chairman!”
Trump’s comments have fueled concerns over whether Warsh will set rates based on economic conditions or instead seek to appease Trump, even if doing so could worsen inflation. At Warsh’s confirmation hearing last month, Sen. Elizabeth Warren, a Democrat from Massachusetts, derided him as a “sock puppet” for Trump.
Still, Warsh denied at the hearing that Trump had pressured him to reduce the Fed’s key rate.
“I will be an independent actor if confirmed as chair of the Federal Reserve,” he said.
A critic of the Fed’s leadership in the past
Warsh has been highly critical of the Fed’s recent track record, particularly the inflation spike in 2021-22, the worst in four decades.
He has called for limiting the Fed’s communications, which would be a sharp shift after decades of growing transparency. He has argued that some of its communications tools, such as quarterly forecasts of where its key rate may head, have made it harder for officials to switch gears.
Senate Democrats have also condemned Warsh for not fully divulging the details of his wealth, which amounts to at least $100 million. His investments include stakes in Polymarket and SpaceX, but he hasn’t revealed the size of those holdings. He promised to sell all such assets within 90 days of being sworn in.
“He will be the wealthiest Fed chair in history, but he refuses to provide transparency to the American people about who he is entangled with,” Warren said.
Warsh faces difficult economic conditions
The Fed is still grappling with how to respond to the 50% spike in gas prices caused by the war in Iran. The increase has boosted inflation, which reached 3.8% in April.
The Fed is tasked by Congress with keeping prices stable, which it seeks to do by raising its short-term rate to make borrowing and spending more expensive, cooling growth and inflation.
The Fed typically looks past temporary price increases that stem from supply disruptions, such as the war’s cutoff of oil through the Strait of Hormuz, because those prices typically level off — or even fall — once supply is restored.
But the Fed also followed that approach after the coronavirus pandemic snarled global supply chains. Inflation turned out to last longer than expected, and Powell and other Fed officials have acknowledged that they waited too long to raise rates. Inflation surged to 9.1% by June 2022.
The Fed’s rate-setting committee has kept rates unchanged for three straight meetings as it evaluates the spike in gas prices. At its most recent meeting last month, three members of the committee objected to language that suggested its next move would be a rate cut. They preferred more neutral language that would allow for a hike. Many Fed watchers saw those dissents as a warning shot to Warsh that he won’t be able to easily engineer rate reductions.
A fourth member of the 12-member committee, Stephen Miran, dissented in favor of a rate cut, as he has at every meeting since Trump appointed him to the Fed’s board last September. Miran is serving until a replacement is named, and Warsh will take his spot.
Powell, meanwhile, said at a news conference on April 29 that he would remain as a Fed governor until the Justice Department closes its investigation into the Fed’s building project, the first time a chair may stay on the board for an extended period since 1948. His term as a governor lasts until January 2028.
U.S. Attorney Jeanine Pirro has dropped the government’s probe, but she has said it could be reopened if the Fed’s inspector general, which has looked into the renovation project since last July, finds evidence of criminal activity. ___
Follow the AP’s coverage of the Federal Reserve System at https://apnews.com/hub/federal-reserve-system.
The Senate has confirmed Kevin Warsh as the new chair of the Federal Reserve, succeeding Jerome Powell amid challenging economic conditions. Warsh, a former high-ranking Fed official, was confirmed by a narrow party-line vote of 54-45 and will take the helm of the world’s most influential central bank during a critical juncture for the global economy.
Inflation has been a pressing issue, remaining above the Fed’s target of 2% for five consecutive years, and is currently exacerbated by soaring gas prices. The Federal Reserve’s interest rate-setting committee is experiencing notable divisions, with dissenting votes at their highest in over thirty years. Powell, who has faced considerable criticism from President Trump and scrutiny from the Justice Department, intends to stay on the Fed board even after his term as chair concludes, raising concerns about potential conflicts of power.
Senate Majority Leader John Thune emphasized the importance of understanding both macroeconomic and microeconomic factors, asserting that Warsh embodies this understanding. Trump’s administration has sought changes at the Federal Reserve, frequently criticizing Powell for not implementing aggressive interest rate cuts. The president’s attempts to dismiss Fed governor Lisa Cook and his investigation into Powell’s Senate testimony have added further complexity to the Fed’s workings.
The investigation into Powell had initially threatened Warsh’s nomination, but it was eventually dropped in April. All Republican senators supported Warsh, along with Democratic Senator John Fetterman from Pennsylvania. Kevin Hassett, director of the National Economic Council, indicated that markets are optimistic about Warsh’s potential to lower interest rates over time, although he stressed that Warsh should make decisions based on data rather than outside pressure.
Trump has publicly expressed his desire for a Fed chair who would cut interest rates in response to rising stock markets, counter to conventional economic wisdom. Warsh’s confirmation hearing included sharp criticisms from Democratic Senator Elizabeth Warren, who accused him of being a “sock puppet” for Trump. Nonetheless, Warsh assured senators that he would operate independently if confirmed.
Warsh, a critic of the Fed’s recent strategies, has pointed to the significant inflation rise in 2021-2022 as a failure of the institution’s leadership. He advocates for a reduction in the Fed’s communication practices, suggesting that increasing transparency has made it challenging for the Fed to adjust its policies effectively.
Concerns have also been raised regarding Warsh’s financial disclosures, as he holds substantial wealth estimated at over $100 million, including investments in companies like Polymarket and SpaceX. Critics, including Warren, have called for more transparency about his financial interests. Warsh has promised to divest from these holdings within 90 days of taking office.
Currently, the Fed is navigating economic challenges, notably a significant spike in gas prices driven by geopolitical tensions, which has contributed to a rise in inflation rates, climbing to 3.8% in April. Traditionally, the Fed aims to stabilize prices by raising short-term interest rates to curtail borrowing and spending, thereby cooling inflation.
In the past, the Fed has often overlooked temporary price increases resulting from supply chain disruptions, like those seen during the COVID-19 pandemic. However, inflation pressures have persisted longer than anticipated, leading to a surge of 9.1% in June 2022. The Fed’s committee has opted to keep interest rates unchanged in recent meetings as it assesses the implications of rising gas prices. The dissent among committee members reflects a cautious approach to future rate decisions, warning Warsh that he may not find it easy to implement rate reductions.
As Warsh prepares to take over, Powell has stated his intention to remain on the Fed board until the conclusion of the Justice Department’s investigation into a renovation project, marking a rare instance of a chair continuing in a board role for an extended period. His term as a governor is set to last until January 2028. Although the investigation has been dropped, it remains open to being reopened depending on findings from the Fed’s inspector general.
In summary, Kevin Warsh’s confirmation as chair of the Federal Reserve comes at a time of heightened scrutiny and economic uncertainty, with inflation and internal dissent presenting significant challenges for his leadership. As he steps into his role, there are questions regarding his independence from presidential influence and how he will navigate the pressures of both the economy and the political landscape.
