The new Fed chair inherits rising inflation and a president expecting rate cuts
The US Senate confirmed Kevin Warsh as the 17th chair of the Federal Reserve on Wednesday.
The central bank he inherits is caught between a president demanding rate cuts and inflation running well above target, with markets now pricing in the possibility of a rate hike before year-end.
According to CNBC, the 54-45 vote was the most partisan confirmation of a Fed chair in US history.
Only Pennsylvania Democratic senator John Fetterman crossed the aisle.
It was the weakest support any Fed chair has received since the position became Senate-confirmed in 1977 — narrower even than Janet Yellen's 56-vote confirmation in 2014, the outlet noted.
Warsh, 56, succeeds Jerome Powell, whose term as chair expires Friday.
Powell is not leaving entirely, CNN reported.
He told reporters last month he would remain as a Fed governor, retaining a vote on every rate decision Warsh chairs, at minimum until a Justice Department probe tied to Fed headquarters renovations is fully resolved.
The last time a former Fed chair remained on the board was 1948.
CNN reported that the confirmation had stalled for months after North Carolina Republican senator Thom Tillis blocked Warsh's nomination until the DOJ dropped its criminal investigation into Powell — a probe Powell publicly called politically motivated retaliation for the Fed's refusal to cut rates,
DC US attorney Jeanine Pirro eventually dropped the investigation in April but said she may reopen it depending on what the Fed's internal watchdog finds, the outlet noted.
As per CNBC, Trump has made no secret that he expects Warsh to lower US interest rates, having repeatedly attacked Powell for what the president described as overly restrictive monetary policy.
During his confirmation hearing, however, Warsh told senators he never promised Trump he could deliver cuts.
The president joked earlier this year that he would sue Warsh if he does not, CNN noted.
According to CNBC, the economic backdrop makes that promise difficult to keep.
US inflation hit 3.8 percent in April — a near three-year high — driven by an energy shock from the US-Israeli war with Iran
Core inflation has risen for three consecutive months, the outlet's analysis reported.
No Fed official has yet called for a rate increase, the New York Times noted, but a growing number have begun arguing one is as plausible as a cut.
CME FedWatch data, cited by the outlet, put the probability of a rate cut this year at just one percent.
The Fed chair holds only one vote on the 12-member Federal Open Market Committee and cannot unilaterally set rates, CNN noted.
Warsh's first meeting as chair is scheduled for June 16–17.
Who is Warsh
This is Warsh's second stint at the US central bank.
Warsh was governor from 2006 to 2011, a period that saw Fed officials first dismiss risks from the subprime mortgage crisis, then launch an unprecedented asset-purchase programme that pushed the balance sheet past US$4tn.
He argued at the time the programme had gone too far, CNBC reported.
Since then, Warsh has lectured at the Stanford School of Business, sat on various corporate boards, and last year advised Trump against firing Powell, a move the outlet noted would have personally benefited Warsh at the institution's expense.
CNN reported that Warsh has outlined sweeping changes for the Fed, including shrinking its US$6.7tn balance sheet, coordinating more closely with the Treasury Department, cutting annual policy meetings from eight to as few as four, and scaling back forward guidance on rates.
JPMorgan analysts said all of those changes fall within a chair's authority, the outlet noted.
CNBC reported that Warsh will be the wealthiest Fed chair on record, with holdings well above US$100m, and will be required to divest many investments under a strict policy implemented after disclosures of questionable trading among senior officials.
US Senate Democrats branded Warsh a "sock puppet" for Trump throughout the confirmation process — a label he repeatedly refuted, the Times reported.
Among those voting against him was minority leader Chuck Schumer, who backed Warsh unanimously for a Fed governorship in 2006, CNBC noted.
