Kevin Warsh was approved as the next Federal Reserve Chairman today in a vote in the Senate that was largely along partisan lines. The vote was 54 for and 45 against, with Pennsylvania Senator John Fetterman being the only Democrat to support his nomination. Warsh arrives at the Fed at a challenging time as inflation is on the rise, and President Trump has made it abundantly clear he wants a Fed Chair who will drive interest rates lower.
Some individuals greeted Warsh’s approval.
The Financial Technology Association (FTA) welcomed Warsh’s leadership of the central bank.
“On behalf of America’s Fintech innovators, we congratulate Kevin Warsh on his confirmation to serve as Chair of the Federal Reserve Board of Governors,” said Penny Lee, President and CEO of the FTA. “Chairman Warsh’s background in public service and his private sector experience make him well-positioned to tackle the economic challenges and opportunities facing our country today. We look forward to working with Chairman Warsh and the Board of Governors on modernized policies that encourage innovation and competition while maintaining safety and soundness in our financial system.”
Representative French Hill, the Chairman of the House Committee on Financial Services, congratulated Warsh on his confirmation, calling him a highly qualified individual who understands both the challenges and the potential.
“Chairman Warsh has repeatedly emphasized the importance of placing affordability and price stability at the center of our economic agenda. I look forward to working with Chairman Warsh as we continue the fight against inflation, making life more affordable for the American people, and refocusing the Federal Reserve on its core mission. His commitment to disciplined monetary policy will help restore confidence in our economy and support long-term prosperity.”
Just as Warsh steps into the leadership role, a report on inflation indicates prices are rising at a faster rate than everyone expected.
The SBE Council noted in a post yesterday that the “Consumer Price Index (CPI) inflation in April registered 0.6 percent. That compared to 0.9 percent in March. These past two months ranked as the worst inflation performance since June 2022.” The group noted this was an excellent reason why the capital gains tax should be indexed for inflation. (Positing that the higher the inflation rate and the real capital gains tax rate, may be at a point where a tax being paid on a nominal capital gain can wind up being a tax paid on a real capital loss.)
While the debate continues as to whether inflation is transitory (apparently the preferred Fed-speak when they do not know) or sticky. Fuel prices have risen substantially due to the conflict with Iran and the dynamics of the Strait of Hormuz. As there is no near-term resolution on the horizon, and Trump seems to be tiring of the bombs and threats strategy that got us here, the high cost of energy and, correspondingly, the cost of everything else, means prices may be on the rise for a while.
And while Warsh has stated that Trump will not control the Fed decisioning process, the President’s past actions in dealing with former Fed Chair Jay Powell belie a different reality.
For some reason, the President does not understand that the market sets interest rates. Mortgages specifically are tied to the 10-year, which does what the market tells it to do. Meanwhile, some Fed prognosticators are anticipating zero rate cuts in 2026. Some even predict a rate increase.
In the end, no one knows for certain, as the Fed should be doing what its mission says, seek an inflation rate of 2% and full employment. All of this should be based on the data at hand.
Thus, Warsh may find himself in a tight spot when the Federal Open Market Committee meets this coming June, as most predict rates to remain unchanged, and he may end up upsetting the person who placed him as Fed Chair.