President Donald Trump’s pick to lead the Federal Reserve is just one vote on the rate-setting committee, potentially setting up Kevin Warsh for a no-win situation that will incur the wrath of the White House, analysts said.
The central bank voted 10-2 Wednesday to keep rates steady, and outgoing Fed Chair Jerome Powell indicated there was broad support for that stance among voting and non-voting members on the Federal Open Market Committee.
So even though Warsh has expressed willingness to lower rates if he replaces Powell, the former Fed governor must still convince his peers to go along. But the economic data may undercut his arguments.
Despite the nomination of the dovish Warsh, analysts at JPMorgan maintained their view that the Fed won’t change rates at all this year, predicting that unemployment will fall and inflation will stay elevated.
If that forecast comes true, it would fly in the face of Trump’s relentless demands for the Fed to press ahead with aggressive rate cuts and likely put Warsh in the president’s crosshairs. At the same time, Warsh’s ability to use the chairmanship to command deference on the FOMC can only go so far.
“Past chairs have generally positioned themselves closer to the center of the Committee’s views and thus received majority support,” JPMorgan said in a note Friday. “Should Warsh find himself in the minority, he would have to decide whether he would tolerate being outvoted.”
While there have been previous instances of chairs on the losing end of votes, they occurred before the recent custom of post-meeting press briefings.
In addition to being a highly awkward situation for a Fed chair undercut by peers, the resulting policy uncertainty could also risk elevating market volatility, analysts warned.
Similarly, Capital Economics pointed out that Warsh lacks allies at the Fed, although he is seen as a solid choice who wouldn’t follow the White House’s bidding.
Still, some FOMC members will be skeptical of Warsh’s motivations for lower rates. Governor Lisa Cook, whom Trump is still trying to oust from the Fed, will likely be wary of someone closely associated with the president, and Governor Chris Waller may not be as eager to cut rates now that he’s no longer in the running to be chair.
“When Kevin Warsh takes the helm at the Fed later this year, his first major challenge will be winning over that same committee to his view that interest rates should be lower,” Capital Economics said in a note Friday. “Failing to do so, Warsh risks facing the same level of abuse from President Trump that Powell endured during his tenure.”
Whatever the Fed does with rates later this year, Warsh could signal one of most consequential transitions in over a decade, according to Dan Siluk, portfolio manager at Janus Henderson.
In a note on Friday, he cited Warsh’s mix of hawkish instincts and willingness to rethink the Fed’s tools. That includes linking rate cuts to a smaller balance sheet, working with the Treasury Department on debt management, and giving markets less forward guidance.
“Markets should prepare for a Fed that is simultaneously more unpredictable and more orthodox, a blend that marks a genuine shift in the post‑crisis monetary landscape,” Siluk predicted.
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