Kevin Warsh to face resurgent inflation and an impatient Donald Trump as chair of the Fed

{"text":[[{"start":10.9,"text":"Kevin Warsh will be thrust into an “impossible” position when he takes the helm of the Federal Reserve as he battles against the inflation triggered by the Iran war and President Donald Trump’s calls for lower rates, economists warn. "}],[{"start":25.75,"text":"Warsh, Trump’s nominee to replace Jay Powell as Fed chair, is expected to be confirmed by the Senate as early as Wednesday, paving the way for his appointment as the world’s most influential central banker."}],[{"start":38.15,"text":"The 56-year-old financier will take the helm at a fraught moment for a US central bank divided on how to respond to surging fuel prices, which have pushed its favoured inflation measure to 3.5 per cent. "}],[{"start":50.8,"text":"At the same time, Trump and the president’s top economic officials are relentlessly demanding interest rate cuts, while the Supreme Court is weighing whether to allow the president to sack Fed governor Lisa Cook. "}],[{"start":62.65,"text":"“He’s coming into office in complicated circumstances, to put it delicately,” said David Wilcox, a former Fed economist who is now at the Peterson Institute think-tank. “He really is caught in an impossible situation between a president who is insistent on rate cuts and an inflation scenario that is problematic.”"}],[{"start":null,"text":"

"}],[{"start":82.3,"text":"Last month’s Federal Open Market Committee meeting, in which the central bank held rates steady for the third straight meeting, saw the most dissents since 1992 as three regional Fed presidents said they no longer agreed the central bank should be signalling its next rate move will be a cut."}],[{"start":99,"text":"Many economists viewed the dissent as not just a reflection of growing concerns over the jump in energy prices set off by Iran’s decision to close the Strait of Hormuz, but also a signal to Warsh that top officials would resist overtures towards rate cuts."}],[{"start":113,"text":"The only Fed official who supported cuts, and dissented with the decision to hold rates unchanged, was governor and Trump ally Stephen Miran, who Warsh is now set to replace on the board."}],[{"start":123,"text":"Others could join the dissenters and ditch their support for cuts, should the Strait of Hormuz, through which about a fifth of the world’s oil flowed prior to the war, remain closed throughout May and the first half of June. "}],[{"start":135.4,"text":"Mary Daly, San Francisco Fed president, warned on Friday at a Hoover Institution conference in Stanford, California that “clogged up” supply chains could keep inflation above the central bank’s 2 per cent target for even longer. "}],[{"start":148.3,"text":"Austan Goolsbee, head of the Chicago Fed, used the same conference in the heart of Silicon Valley to dispute Warsh’s thesis that an AI-induced productivity boom would create space for rate reductions."}],[{"start":160.35000000000002,"text":"“Wealth effects on consumer spending — some of it may be right here among your neighbours in Palo Alto; higher investment in data centres driven by rising stock market valuations driving up the cost of land, electricians, computer chips etc for non-AI industries,” he said. “All of these may suggest productivity growth pushing the ideal interest rate higher, not lower.”"}],[{"start":182.10000000000002,"text":"Wilcox warned that Warsh was likely to have an easier time convincing the Fed board to back his views than managing his relationship with Trump, whose unprecedented attacks on the Fed have drawn condemnation from former US central bank chiefs and international policymakers. "}],[{"start":198.40000000000003,"text":"“He’s got some minor headaches on the macroeconomic front,” said Wilcox, who also works for Bloomberg Economics. “Where he’s got a major challenge of the first order is in managing his external relations with the president.”"}],[{"start":211.20000000000005,"text":"Many economists attending last week’s conference at Hoover, a conservative think-tank, have long shared Warsh’s view that, if the Fed is to retain its independence, the central bank should use rate setting as its key means to achieve price stability and maximum employment."}],[{"start":226.85000000000005,"text":"They also back his view that the Fed should shrink its balance sheet that became bloated after successive bond-buying programmes, beginning after the 2008 financial crisis and revving up in response to the pandemic. "}],[{"start":null,"text":""}],[{"start":239.55000000000004,"text":"Marvin Barth of Thematic Markets said at the event that Fed officials needed to acknowledge that the post-pandemic surge in inflation that happened under their watch had paved the way for Trump’s attacks. "}],[{"start":251.30000000000004,"text":"The assault on the Fed’s independence was partly down to “objective policy failures” during Powell’s time in charge that “the Fed continues to deny”, Barth said. “In a democracy, everyone — right or wrong — must be accountable to the people.” "}],[{"start":264.95000000000005,"text":"Barbs by Warsh of a similar nature, which he has thrown frequently from his perch as a fellow at Hoover, have left some Fed insiders wary of the new chair. The challenges facing Warsh in implementing change will now almost certainly be compounded by a lack of trust created by Trump’s attacks on Powell and Cook. "}],[{"start":283.50000000000006,"text":"The Supreme Court has allowed Cook to remain on the Fed board while it considers her case against Trump, who attempted to fire her in August 2025 for alleged mortgage fraud, which she denies."}],[{"start":296.90000000000003,"text":"Powell, who was the subject of a criminal investigation by Trump’s Department of Justice, has also broken with almost 80 years of precedent and opted to stay on in the lesser role of governor for now, amid concerns over the president’s attempts to pressure Fed officials into cutting rates."}],[{"start":315.00000000000006,"text":"John Cochrane, an economist at the Hoover Institution, said Warsh’s “first job” as Fed chair would be to “try and unite” the FOMC behind his vision for the central bank. "}],[{"start":327.95000000000005,"text":"Cochrane added that the presence of Powell, who is well liked and respected among the central bank’s staff, “isn’t going to make it easy”."}],[{"start":334.95000000000005,"text":"Join FT journalists and a special guest on Wednesday May 20 at 1200 GMT for a subscriber webinar on The Dollar under Trump: how will Kevin Warsh change the Fed? Register at ft.com/trump-dollar and send us your questions"}],[{"start":360.8,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1778579762_9392.mp3"}