Kevin Warsh was sworn in for a four-year term as chair of the Federal Reserve, a role that will grant him outsized influence over interest rates and the direction of the U.S. economy at a consequential moment.
The 56-year-old former finance executive and adviser to President George W. Bush was sworn in on May 22. He previously served on the Fed’s Board of Governors from 2006 to 2011 — a period when the central bank had to navigate the fallout from the 2008 financial crisis. He rejoins the Fed, whose goal is stable prices and maximum employment, at a time when inflation is surging as a result of the Iran war and concerns linger about stagnation in the job market outside select industries.
“It’s the honor of a lifetime to be called back into public service, and with this oath, I’ve accepted a high and solemn responsibility,” Warsh said during a ceremony at the White House. “My goal now is to create an environment in which the best people can do their life’s best work, and to face every challenge in the spirit of common purpose and devotion to the national interest. In a word, to excellence.”
Warsh replaces Jerome Powell, who has served as Fed chair since 2018 and who said he intends to keep “a low profile” as a Fed governor after Warsh was confirmed. President Donald Trump nominated Powell to his first term as chair in 2017. By the following year, the president was criticizing him, telling the Washington Post he was “not even a little bit happy” with his appointment. In his second term, Trump has pressured the Fed to lower its benchmark interest rate and acted to exert influence over the central bank, prompting concerns about the institution’s independence.
At the ceremony, Trump said he expects Warsh will go down as one of the Fed’s “truly great” chairs and that his nominee will have “full support” from his administration.
“Honestly, I really mean this. This is not said in any other way. I want Kevin to be totally independent. I want him to be independent and just do a great job. Don’t look at me. Don’t look at anybody,” Trump said. “Thankfully, unlike some of his predecessors, Kevin understands that when the economy is booming, that’s a good thing.”
In some ways, the economy Warsh is inheriting as Fed chair is similar to the one Powell faced when he was sworn in as chair in 2018.
In the first quarter of that year, the U.S. economy grew at an annual rate of 2% — identical to the Bureau of Economic Analysis’ advance estimate for the first quarter this year. The unemployment rate was 3.9% in April 2018, and 4.3% in the same month this year. The inflation environment, however, is different. Prices rose 2.5% year-over-year in April 2014, compared with a 3.8% increase in April this year.
“The biggest challenge he is going to face is an economy that’s solid, employment that’s fine but not spectacular, and inflation that’s stubbornly above their 2% target by every measure,” Thrivent’s Chief Financial and Investment Officer David Royal said.
Warsh also rejoins the Fed at a time when consumers’ optimism about the economy is at a record low. The University of Michigan’s measure of consumer sentiment fell for the third straight month in May, declining to 44.8. According to Surveys of Consumers Director Joanne Hsu, 57% of survey respondents said that high prices were “eroding” their personal finances.
Like Powell, who was also a Fed governor turned chair, Warsh is a known figure on Wall Street. He’s also no stranger to the central bank, which may help him generate consensus among the Federal Open Market Committee, which sets the benchmark interest rate.
Warsh, however, has called for some reforms at the Fed. During his confirmation hearing, he suggested the Fed needs a new inflation framework and a communications style less focused on forward guidance.
“When the Fed speaks, the market reacts,” ConnectOne Bank Founder and CEO Frank Sorrentino said, adding that’s what Warsh wants to avoid. “Sometimes it could be the precursor to what policy decisions they want to make, getting the market to sort of anticipate and move in that direction. I just think Warsh doesn’t think that’s a smart way of going about running an independent Fed, because you do run the risk now of politicizing the decisions.”
At the same time, he said, Warsh appears to be more forward-thinking when it comes to setting monetary policy than Powell, under whom Fed decisions have depended on data available to policymakers at the time of their meetings.
“He’s got some very, very differentiating policy theories about the money supply, the Fed balance sheet, interest rates in general, the impact AI is having and will continue to have on the economy,” Sorrentino said of Warsh. “He wants to get ahead of things.”
While Warsh was once seen as someone focused on keeping inflation tame through higher rates, he’s recently advocated for lower borrowing costs.
Royal said there may be two reasons for that. First, Warsh sees AI-driven productivity as a potential disinflationary force. Sorrentino explained the logic: AI is expected to make work faster and cheaper, potentially leading to an increased supply of goods and services. Through the laws of supply and demand, prices could fall as a result.
Jacob Robbins, an assistant professor of economics at the University of Illinois, advises caution, having previously told USA TODAY, “You should be very sure of how AI is going to affect the economy before you should call for lower interest rates at this moment.”
The second reason, Royal said, is because Warsh is also advocating for shrinking the Fed’s balance sheet. The idea is if that happened, Sorrentino said, it would likely reduce liquidity in the economy, which could reduce asset values and eventually lead to lower inflation.
Warsh believes “the Fed balance sheet is distorting the economy — there’s too much cash running around chasing after assets,” Sorrentino said. “What’s the proof of that? Look where gold is, look where the markets are, and look where crypto is… They’ve been inflated.”
Historically, markets have dipped after the confirmation of new Fed chairs. Royal said investors shouldn’t be surprised if that happens again after Warsh is sworn in.
“He’s not a current Fed member. He’s less of a known commodity than some other Fed chairs are when they take over, so I would just be watching for that volatility,” he added.
The FOMC’s next rate decision is in mid-June and will mark Warsh’s first as chair. As of May 22, forecasters predict policymakers will hold the federal funds rate steady at a range of 3.5% to 3.75% as they have so far this year.
Reach Rachel Barber at rbarber@usatoday.com, follow her on X @rachelbarber_, and subscribe to her newsletter “Making More of Your Money” here.