Washington (United States) (AFP) – US President Donald Trump announced Friday that he is nominating Kevin Warsh, a former Federal Reserve governor, to be the next US central bank chief. Trump’s decision caps a closely watched search for a successor to Fed Chair Jerome Powell, whom the president has repeatedly lambasted for not cutting interest rates more swiftly.
“I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best,” Trump wrote on his Truth Social platform. “On top of everything else, he is ‘central casting,’ and he will never let you down,” Trump added. Powell’s term at the helm ends in May, although it remains to be seen if he will also step down from the Fed’s powerful board of governors.
The president’s selection ends a race that had narrowed to four contenders — Warsh; current Fed governor Christopher Waller; Rick Rieder of BlackRock; and Trump’s top economic adviser Kevin Hassett. Trump said in separate social media posts that he did not pick Hassett, who heads the White House National Economic Council, as Hassett was “indescribably good” in his current role. Waller and Rieder would “all would have been outstanding” too, he said.
– Senate hurdle –
Warsh will need to be confirmed by the US Senate, facing questions by lawmakers on both sides of the aisle amid growing concerns about threats to the Fed’s insulation from politics. Trump’s recent attempt to oust another Fed Governor, Lisa Cook, and his administration’s investigation into Powell over renovation costs at the bank, have sparked worries about Fed independence.
If independence were eroded, this could have ramifications for the world’s biggest economy, experts warn. Warsh must now get through a Senate Banking Committee hearing, “maintaining the confidence of both markets and the president in the process,” said economist Samuel Tombs of Pantheon Macroeconomics. After which, Warsh must pass a confirmation vote in the Senate with a simple majority.
But Republican Thom Tillis, who sits on the banking committee, has vowed to oppose the confirmation of any Fed nominee — including the next chairman — until the probe against Powell is resolved. The top Democrat on the panel, Senator Elizabeth Warren, warned Friday that Warsh’s nomination “is the latest step in Trump’s attempt to seize control of the Fed,” urging Republicans to also block it. Although Trump’s Republican party holds a Senate majority, some lawmakers’ concerns about the Powell investigation have cast doubt on how smooth-sailing the confirmation process would be.
– Economic challenges –
Warsh, who is from New York, has recently stepped up his criticism of the Fed, endorsing many of the policy positions of Trump and his administration. He used to be a mergers and acquisitions banker at Morgan Stanley, and is currently a visiting fellow at the Hoover Institution. In Trump’s first term, the president considered Warsh for the Fed chair position as well — replacing Janet Yellen — but eventually chose Powell.
As Trump continues to call for lower interest rates to boost the economy, all eyes will be on how Warsh defends the bank’s independence in the face of politics. The next Fed chairman will need to convince markets and policymakers that he is upholding the bank’s dual mandate of stable prices and low unemployment independently of political pressure.
Even without Trump’s pressure, the Fed’s job has become increasingly challenging as US tariffs over the past year have fueled worries of stubborn inflation, while the employment market has cooled. The situation leaves Fed policymakers walking a tightrope as they adjust interest rates, deciding if they should keep levels higher to curb inflation or lower them to shore up the economy.
With the labor market likely deteriorating in the coming months and inflation expected to tick down, the next Fed chief could “uncontroversially reduce rates,” Tombs said. But he added that the jury is still out on whether Warsh will “pander to the president” if persistent inflation called for higher interest rates.
© 2024 AFP
