Warsh Takes Fed Helm With Trump's Trust and Reform
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- Kevin Warsh holds his first news conference as Fed Chair on Wednesday, entering with a trust-based relationship with Trump that gives him "scope of action" to pursue reforms — a stark contrast to the volatile dynamic Trump maintained with Powell.
- Warsh's reform agenda includes moving toward lower rates, reducing the Fed's multibillion-dollar balance sheet, and reconsidering how the institution measures inflation, though he has not specified a replacement for the core PCE gauge.
- Markets expect Warsh to hold rates steady at his debut meeting; CME FedWatch now prices in at least one quarter-point rate increase by year-end, reversing January expectations of cuts.
- Warsh told his April confirmation hearing he's willing to hear from Trump on rates but the final call is the Fed's: "Humble central bankers should be listening and then making their own decisions."
- Three FOMC members dissented at Powell's final April meeting to demand removal of the policy statement's "easing bias" sentence; Hoover Institution's Mickey Levy predicts Warsh will rewrite that line and end the dissents.
- Warsh inherits Powell's informal "troika" arrangement with Vice Chair Philip Jefferson and New York Fed President John Williams, and faces a quiet lobbying effort to push Williams toward retirement ahead of his June 2028 mandatory date.
- Core PCE inflation stood at 3.3% in the most recent reading, well above the Fed's 2% target; Dallas Fed's Lorie Logan and Cleveland Fed's Beth Hammack have said rates might need to rise this year.
Why it matters: Warsh enters with political capital Trump never gave Powell, but he faces a 3.3% core PCE well above the 2% target and at least two regional Fed presidents openly flagging the case for hikes. Bond traders, per Potomac River Capital's Mark Spindel, will demand higher yields to compensate for uncertainty about Warsh's inflation-measurement overhaul, meaning even a 'steady' first meeting could quietly raise borrowing costs.
