Donald Trump has nominated Kevin Warsh to replace Jerome Powell as Federal Reserve chair, igniting a battle over the central bank's independence and the future of US interest rates. Trump, who has fiercely criticized Powell for refusing to cut rates, believes Warsh will be a loyal leader, but the nomination faces significant hurdles and questions about Warsh's true policy stance.
Donald Trump, who once lauded Jerome Powell as a strong leader for the Federal Reserve, now labels him a 'moron' and 'incompetent' for refusing to bow to demands for drastic interest rate cuts. Trump has openly expressed a desire to fire Powell, but the Fed's longstanding independence has protected its chair from political interference. In a move to replace Powell, whose term expires in May, Trump has nominated Kevin Warsh, a former Fed governor. Trump hopes Warsh will provide the 'loyal' leadership he seeks, believing he will align with the president's calls for lower interest rates. Warsh, historically known as a 'hawkish' figure prioritizing inflation control with higher rates, has recently published arguments supporting Trump's 'pro-growth policies' and criticizing the Fed's high rates. However, skepticism remains among some analysts who question whether Warsh will maintain this 'dovish' stance once he is back within the Fed. The nomination process for Warsh is not straightforward; he requires Senate confirmation, and a Republican senator has vowed to block it until a Department of Justice criminal investigation into Powell is resolved. The article underscores the critical importance of the Fed's independence, which is defended by courts and Wall Street, and is crucial for its credibility in guiding the world's largest economy. Jerome Powell has repeatedly emphasized the necessity of the Fed making decisions based solely on economic assessments, free from political influence, warning that losing public faith in its independence would be incredibly difficult to restore. The Fed has built-in protections, such as 14-year terms for governors and a consensus-based rate-setting committee, to insulate it from political pressure, ensuring that the chair alone cannot dictate interest rate policy.
