Washington– President Donald Trump has made clear that he expects his pick for Fed chair to cut interest rates quickly once he takes office. However, Americans shouldn’t cut their borrowing costs for mortgages, auto loans, or business loans just yet.
odds Kevin Warsh become president by the time Jerome Powell’s term expires on May 15. It rose on Friday when the US Attorney for Washington, D.C., Jeanine Pirro, said she He will drop her investigation To Powell because of his testimony last summer About the Fed’s expensive building renovations.
But if his appointment is confirmed, Wershe will still face several obstacles to lowering interest rates, including higher gas prices They push inflation higherquestions about his political independence, and 11 other Fed decision-makers who have a vote on the decision Most of them Not ready to cut.
In a Senate hearing on TuesdayWarsh pledged to be independent of pressure from the White House, but said relatively little about the direction interest rates would take. While economists say he is likely just being cautious, he missed an opportunity to make a case for lowering interest rates.
“Warsh’s stated forecasts are more consistent with an extended suspension of additional cuts,” Aditya Bhave, head of US economics at Bank of America Securities, wrote in a note to clients.
Meanwhile, Trump kept up the pressure. When asked last week on Fox Business if he still expects interest rates to be lower, Trump said: “When Kevin takes over, I expect that… interest rates should be much lower.”
Here’s what you need to know about Warsh and what he’ll face as the next Fed chair:
Warsh, who was a member of the Fed’s board from 2006 to 2011, was regularly calling for lower interest rates last year when he sought Trump’s nomination to replace Powell. But since his naming in late January, he has remained quiet, making no public comments since the start of the Iran war on February 28.
The war caused oil and gas prices to rise, causing inflation to rise to a high level Highest level in two years at 3.3% In March, above the Fed’s target of 2%. The Fed usually keeps the short-term interest rate – currently around 3.6% – high to combat inflation, or even raises it.
The Fed cuts interest rates to stimulate more spending and hiring, and earlier this year, several Fed officials expressed concern that the slowdown in job gains showed the rate was too high. But in recent weeks there are signs on the job market It may be stableWhich may undermine the need to lower interest rates.
Christopher Waller, the Fed governor who voted to cut interest rates in January, last week expressed concerns that rising inflation could mean the Fed would have to stay put. He also noted that with the unemployment rate still low at 4.3%, interest rate cuts may not be necessary.
Treasury Secretary Scott Besent said last week that if the Fed wants to “wait for some clarity” before cutting interest rates, “I understand that,” a statement widely seen as providing some cover for Wershe to keep interest rates unchanged for at least a few months.
Right now, Wall Street investors see little chance of a rate cut through October 2027, according to futures pricing.
To be sure, if inflation declines in the coming months and unemployment worsens, more Fed officials may end up supporting rate cuts. The economy has been volatile over the past year, at times appearing healthy and other times weak.
Another challenge for Warsh is that he will be just one of 12 voters on the Fed’s rate-setting committee, which meets eight times a year to decide where to set the overnight interest rate. Most have indicated in recent speeches or votes that they are reluctant to lower borrowing costs with inflation so high. The commission voted 11 to 1 to retain Interest rates unchanged in March.
Next week, in what is likely to be Powell’s last meeting, the committee is widely expected to keep interest rates where they are.
Stephen Meiran, the governor appointed by Trump last September, was the only official to vote in favor of lowering interest rates in March, and he has voted in favor of lowering rates at every meeting he has attended. But Warsh will replace Miran. Another Trump appointee in his first term, Michelle Bowman, has occasionally dissented in favor of lower interest rates.
But a larger faction on the committee wants the Fed to start considering the possibility of raising interest rates, rather than lowering them, at upcoming meetings, according to Minutes of their meeting in March.
Former Fed officials say Fed members typically seek the president’s support. But rarely can a chair single-handedly quickly swing the entire committee in his direction.
The last time a president was able to achieve something close to that was in the late 1990s, when then-president Alan Greenspan was president, said John Faust, an economist at Johns Hopkins University and a former adviser to Powell. Famous convinced The rest of the panel said that increased productivity through the Internet would keep inflation from rising, so the Fed did not need to raise interest rates.
That happened after Greenspan had been chairman of the committee for several years and was able to build support within the committee, Faust said.
“Warsh comes with none of the gravitas that Greenspan had,” Faust said. “Instead, Warsh comes with the baggage that Trump has already brought on him. This is not Warsh’s fault, but Trump has led to legitimate questions about whether he will act independently.”
One way to achieve independence is for Warsh not to cut interest rates immediately, economists said.
In his remarks at Tuesday’s session, Warsh acknowledged that “we have a short window to try to get inflation back to where it should be,” which some economists said sounds like an argument for raising interest rates, rather than cuts.
Warsh also said the labor market is essentially at what the Fed considers “employment cap,” or the lowest level the unemployment rate can reach before it starts to push up inflation. It also suggests that the Fed does not need to cut to boost employment.
Before his nomination, Warsh had often argued that artificial intelligence would accelerate growth and make the economy more efficient. As he often said, like the Internet, the Internet would allow the Fed to cut interest rates without worrying about inflation.
At the hearing, Warsh repeated his claim about AI, but added: “We don’t know that, and we can’t rely on that,” which struck many economists as a step back from his previous position.
Warsh’s views “didn’t have a lot of clarity,” said Claudia Sahm, chief economist at New Century Advisers and a former Fed economist. “Then he muddied the waters. There were very few details.”