(AFP) – President Donald Trump said Friday he would nominate former Federal Reserve governor Kevin Warsh to be the next US central bank chief, a move that has sparked cautious optimism among observers. The decision caps a highly publicized search for a successor to Fed Chair Jerome Powell, whom the president has repeatedly lambasted for not cutting interest rates more swiftly.
Trump told reporters Friday that Warsh “certainly wants to cut rates,” but added that he did not wish to question Warsh on commitments to do so. “I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best,” Trump wrote on his Truth Social platform, announcing his choice. “On top of everything else, he is ‘central casting,’ and he will never let you down,” Trump added.
Warsh, 55, was the youngest person to serve as a Fed governor, a role he held from 2006 to 2011. Trump considered Warsh for the top Fed job too during his first presidency, but eventually chose Powell — a decision he quickly soured on. Prices of precious metals — seen as safe haven assets — sank Friday in a sign that investors were reassured by Trump’s choice, with the dollar also seeing a boost. Powell’s term as chairman ends in May. But it remains unclear if he will also step down from the Fed’s board of governors, which would free up another vacancy Trump could fill.
– Senate hurdle –
Warsh will need to be confirmed by the US Senate, where he will face tough questions from lawmakers amid growing concerns about threats to the Fed’s independence. Trump’s recent attempt to oust Fed Governor Lisa Cook, and his administration’s investigation into Powell over renovation costs at the bank, have sparked worries about the institution’s insulation from politics. An erosion of Fed independence could have negative ramifications for the economy, experts warn.
Warsh must now get through a Senate Banking Committee hearing, “maintaining the confidence of both markets and the president in the process,” said economist Samuel Tombs of Pantheon Macroeconomics. After that, he must pass a confirmation vote in the Senate with a simple majority. But Republican Thom Tillis of the banking committee reiterated Friday his plan to oppose the confirmation of Fed nominees — including the next chairman — until the probe against Powell is resolved. The top Democrat on the panel, Senator Elizabeth Warren, warned that Warsh’s nomination “is the latest step in Trump’s attempt to seize control of the Fed.” She called on Warsh to answer questions surrounding the Trump administration’s targeting of Powell and Cook. With 13 Republicans and 11 Democrats on the panel, a single Republican’s opposition could trigger an impasse.
– Economic challenges –
Warsh was once known as an inflation “hawk” favoring higher interest rates to curb price hikes. But he has stepped up criticism of the Fed recently, endorsing policy positions of the Trump administration. As Trump continues to call for lower rates to boost the economy, analysts are monitoring if Warsh defends the bank’s independence. He will need to convince markets and policymakers that he is upholding the bank’s dual mandate of stable prices and low unemployment — despite political pressure.
Already, the Fed’s job has become increasingly challenging as US tariffs fuel worries of stubborn inflation, while the employment market cools. Policymakers walk a tightrope as they adjust rates, deciding if they should keep levels higher to curb inflation or lower them to support the economy. With the labor market likely deteriorating further and inflation expected to ease, the next Fed chief could uncontroversially reduce rates, Tombs said. He added that Warsh could shift his position if persistent inflation called for higher rates.
Trump’s selection ends a race that narrowed to four contenders — Warsh; Fed governor Christopher Waller; Rick Rieder of BlackRock; and Trump’s top economic adviser Kevin Hassett.
– Beiyi SEOW
© 2024 AFP
