Fed Leadership Change: Kevin Warsh Succeeds Powell Amid Concerns Over Aligning with Trump’s Preferences and Exacerbating Inflation

The U.S. Senate confirmed on Wednesday, May 13, President Trump's nomination of Kevin Warsh to serve as the next Federal Reserve Chair.

At 56 years old, Warsh previously held senior positions at the Fed, and the timing of his takeover comes amid significant challenges and uncertainty.

Inflation in the United States has exceeded the Fed’s 2% target for five consecutive years, and it is accelerating further due to soaring fuel prices. The Federal Open Market Committee (FOMC), responsible for setting interest rates, is deeply divided—last month saw the highest number of dissenting votes in over thirty years. Meanwhile, after years of personal attacks from Republican presidents and unprecedented pressure from the Department of Justice (DOJ), outgoing Chair Jerome Powell plans to remain on the Federal Reserve Board after his term ends, potentially creating a new center of power.

For years, the Fed has faced interference from Trump. He repeatedly criticized Powell for failing to cut interest rates and pushed for leadership changes. In December last year, Trump posted on social media that he wanted the Fed Chair to lower rates when the stock market rose—a logic contrary to traditional economics—and added: “Anyone who disagrees with me won’t be the Fed Chair!”

These statements have raised concerns about whether Warsh will make decisions based on economic data—or instead cater to Trump’s preference for rate cuts, even if this risks worsening inflation. During confirmation hearings, Democratic Senator Elizabeth Warren accused him of being Trump’s “puppet.” Warsh refused to acknowledge that Trump lost the 2020 election to Biden and rejected claims of election manipulation. However, he denied that Trump had pressured him to cut interest rates.

Some Democratic senators also criticized Warsh for not fully disclosing his wealth. Public records indicate his assets exceed $100 million, including shares in Polymarket and SpaceX, though the exact scale remains undisclosed. He pledged to sell these assets within 90 days of taking office. Senator Warren stated: “He will become the wealthiest Fed Chair in history—but refuses to disclose his connections to any stakeholders.”

Currently, the Fed is grappling with the impact of rising oil prices triggered by the Iran conflict—up approximately 50%—which has pushed inflation to 3.8%. The Fed’s mandate is to maintain price stability, typically achieved by raising short-term interest rates to curb borrowing and spending, thereby cooling the economy and inflation. In practice, however, the Fed often overlooks short-term price increases driven by supply shocks—such as energy disruptions caused by blockages in the Strait of Hormuz—since such spikes tend to reverse once supply resumes. Yet during the pandemic, the Fed adopted a similar approach, resulting in inflation lasting far longer than expected. Ultimately, inflation surged to 9.1% in June 2022, a figure Powell himself admitted was due to delayed rate hikes.

The Fed has kept interest rates unchanged for three consecutive meetings to assess the impact of the oil price shock. At the most recent meeting, three committee members opposed the wording in the statement suggesting “future rate cuts may be appropriate,” arguing instead for maintaining a neutral stance to preserve room for potential future hikes. This was interpreted by some observers as a warning signal to Warsh, indicating he may face resistance in pushing for rate reductions. Additionally, Stephen Miran, a member appointed by Trump, has consistently advocated for rate cuts and voted against the statement at every meeting.

On April 29, Powell stated that he would continue serving on the Federal Reserve Board until the DOJ investigation concludes—an unusual situation since 1948. Although the DOJ has formally dropped the probe, U.S. prosecutors noted that the investigation could restart if the Fed’s inspector general uncovers issues.

Source: rfi

Original article: toutiao.com/article/1865144682857603/

Disclaimer: This article reflects the personal views of the author