(May 23): US President Donald Trump stressed that he wants Kevin Warsh to independently lead the Federal Reserve (Fed), as he looked to downplay investor concern that he would pressure the new central bank chief on policy decisions.
Warsh, who has promised the biggest shake-up in decades at the US central bank, was sworn into office on Friday in a White House ceremony as the 17th chair of the Fed.
“I want Kevin to be totally independent. I want him to be independent and just do a great job. Don’t look at me, don’t look at anybody, just do your own thing and do a great job,” Trump said during the swearing-in ceremony.
The interest-rate setting Federal Open Market Committee on Friday also unanimously selected Warsh as its chair, the Fed said in a statement.
Warsh takes over at a tense moment for the economy and the central bank. Price pressures have reaccelerated in recent months, driven by the impact of war in the Middle East on energy supplies. Investors now see an interest-rate increase coming by December after fresh data on Friday showed consumer expectations for longer-term inflation jumped to their highest level in seven months.
The Fed, meanwhile, has been battered for the past year by Trump for not cutting interest rates quickly enough. During the ceremony, Trump criticised the Fed for becoming “distracted by concerns far removed from its core mission and mandate”, such as climate change and diversity initiatives, but refrained from commenting on rate decisions.
See also: Fed’s Waller says next move as likely to be rate hike as cut
“Kevin will safeguard the Fed’s integrity. They will make their own decisions, and hopefully make them well, but they will be listening to Kevin all the way,” Trump said.
But the backdrop of persistent inflation and political pressure has stoked concern among investors and analysts that the Fed’s independence is under threat. In his confirmation hearing for the job, Warsh repeatedly pledged to act independently even as he criticised the central bank for what he called mission creep and its response to the pandemic inflation surge.
Some of the president’s allies are eager to help Warsh avoid the same fate as the outgoing chair, Jerome Powell, who has been one of Trump’s favourite punching bags since his first term. Officials sensitive to market gyrations and cognisant of the importance of Fed independence to bond traders, like Treasury Secretary Scott Bessent and Fox Business’ Larry Kudlow, have publicly made comments giving Warsh cover to leave rates unchanged for a time.
See also: US consumer sentiment drops to record low on inflation worries
Similar messages have been delivered privately, according to people familiar with the matter, and the effort may be working, at least for now.
Even as Trump stated his desire for Warsh to be independent, he also subtly encouraged Warsh not to get in the way when the economy expands briskly.
“Unlike some of his predecessors, Kevin understands that when the economy is booming, that’s a good thing,” Trump said. “We don’t have to go crazy, just let it boom. We want it to boom.”
The luminaries in attendance at Friday’s ceremony also highlighted the new chair’s ties to the conservative movement.
Justice Clarence Thomas, one of the Supreme Court’s most right-leaning members, administered the oath of office to Warsh. The High Court is considering a case challenging Trump’s attempt to fire Lisa Cook as a Fed governor.
In his remarks, Warsh also highlighted his time working with Justice Brett Kavanaugh, who was also present, in former president George W Bush’s White House. He told Trump, “We counted ourselves blessed and grateful to serve the nation we love, and to do it in your building, sir.”
Warsh isn’t the first Fed chair to take the oath in the presence of the president. George W Bush attended the swearing in of Ben Bernanke in 2006 at the central bank’s headquarters while Ronald Reagan hosted Alan Greenspan’s ceremony at the White House in 1987.
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The US Senate confirmed Warsh as the Fed chair on a 54-45 vote earlier in May. The vote was the slimmest confirmation margin ever for a Fed chair, reflecting partisan divides in Congress and concerns among Democratic lawmakers that Warsh may be receptive to Trump’s demands on interest rates.
Warsh, one of the wealthiest Fed officials in history, promised to divest from some of his holdings before being sworn into office. Documents released by the Office for Government Ethics earlier this week showed he has sold most of those, though those filings did not indicate whether all holdings were sold and it remains unclear whether he has divested from everything yet.
‘Regime change’
Warsh has promised to bring “regime change” to the central bank, including by shrinking the Fed’s US$6.7 trillion ($8.6 trillion) balance sheet, establishing a new framework for analysing inflation and changing how the institution communicates with the public.
After taking the oath of office, Warsh said it was possible to deliver “unmatched prosperity that will raise living standards for Americans from all walks of life”.
“Our mandate at the Fed is to promote price stability and maximum employment,” he said. “When we pursue those aims with wisdom and clarity, independence and resolve, inflation can be lower, growth stronger, real take-home pay higher.”
Warsh will face an immediate challenge, however, on the policy front. Ahead of receiving Trump’s nomination for the chair job, Warsh laid out a case for why rates could be lower. But Fed officials are showing little appetite to deliver near-term reductions amid concerns about inflation, which accelerated in April by the fastest pace since 2023.
Policymakers left interest rates unchanged last month in a range of 3.5% to 3.75%. Minutes from that meeting showed a majority of officials warned they would likely need to consider raising interest rates if inflation continues to run persistently above their 2% target.
Fed governor Christopher Waller, one of the most influential policymakers, said on Friday he now thinks the central bank’s next move is just as likely to be a hike as a cut. The Fed’s rate-setting panel will next meet June 16-17 in Washington.
The leadership transition at the Fed is also made unusual by Powell’s decision to remain on the Board of Governors, breaking with the precedent of past chairs leaving the institution at the end of their leadership terms. His term as a governor runs to January 2028.
Powell said ongoing legal threats against him and the central bank left him with no option but to stay. The last outgoing chair to remain on the board was Marriner Eccles, who stayed on as a policymaker until 1951 after his term as the head of the central bank ended in 1948.
Trump’s Department of Justice launched a criminal investigation into a US$2.5 billion renovation of the central bank’s Washington headquarters, a probe that held up Warsh’s confirmation before US Attorney Jeanine Pirro said she was dropping it.
Powell has said he is staying on to support the Fed’s independence from political interference and not to undermine his successor.
Uploaded by Tham Yek Lee
