The Senate on May 13 confirmed former finance executive and former Federal Reserve governor Kevin Wersh as the new chairman of the US central bank, giving him a role that will make him one of the world’s most influential economic policymakers.
The Senate voted 54-45 to confirm President Donald Trump’s nominee. In a similarly divided vote, the Senate confirmed Warsh to a new 14-year term on the Fed’s Board of Governors a day earlier. His confirmation comes amid concerns about the central bank’s independence, with Trump’s continued bullying of soon-to-be-former Fed Chairman Jerome Powell as the legal matters raise further questions about the institution’s autonomy from politics.
Varash’s policy outlook on rates
Warsh, who served on the Fed’s Board of Governors from 2006 to 2011, will rejoin the central bank at a time when Federal Open Market Committee members remain somewhat divided on the best path forward for rates. Rising inflation stemming from the Iran war and low hiring in the job market outside some sectors such as health care pose risks to both sides of the Fed’s mission – to keep prices stable and employment high.
Building consensus on the rate-setting committee will be one of Wersch’s goals as chair, although he “seems less concerned about the persistence of inflation than many current Fed officials”, according to Christian Floro, market strategist at Principal Asset Management.
Floro said that while Wersh appears to be more supportive of low rates today than markets may remember him in the years following the 2008 financial crisis, his focus on AI-driven productivity gains and calls for a new inflation framework suggest he may be more open to “looking at” temporary price shocks.
“For Warsh, the perception challenge may prove to be as important as the policy challenge,” Floro said. “Because the administration has been vocal about wanting lower rates, any dovish stance risks intensifying scrutiny around the Fed’s independence.”
Concerns about Fed independence
During his confirmation hearing on April 21, Wersh said he believed central bank independence is important, but added that it “has to be earned”, suggesting that the Fed has fallen behind in doing so in recent years. He said the Fed “missed its target” in ensuring price stability for everyday Americans during and after the COVID-19 pandemic, when inflation reached a 40-year high.
Despite Trump’s frequent calls to lower borrowing costs, Wersh said the president never asked him to pre-commit to a rate cut and he would never agree to do so.
Rates are set by the 12 voting members of the FOMC, and although Wersch will serve as chairman, he will have just one vote. If he believes a cut is necessary, he will need to convince a majority of his colleagues on the committee, including Powell, who has said he plans to stay on as Fed governor “for a determined period of time.” Powell’s term on the board will not officially end until January 2028.
In his final press conference following the committee’s April 29 decision to leave the federal funds rate unchanged at a range of 3.5% to 3.75%, Powell congratulated Wersch and said he planned to “keep a low profile” as governor.
“There is only one chairman of the Federal Reserve Board,” Powell said. “When Kevin Wersh is confirmed and sworn in, he will be that Chairman. Once he is sworn in as Board Chairman, his new colleagues will also elect him to be Chairman of the FOMC.”
What to expect under a Warsh-led Fed
During his four-year term as chair, Wersch is expected to push for reforms at the Fed. At his Senate confirmation hearing on April 21, he told lawmakers that the Fed needed new tools and a new communication style that focused less on forward guidance.
Floro said that given Warsh’s call for a smaller Fed balance sheet, reducing it could be an area where investors could see “a meaningful philosophical break from the Powell era.” Under a warish Fed, markets could see a steepening yield curve, with front-end rates falling and long-end yields rising, he said.
“The biggest changes may ultimately be less about where rates will go next and more about how the Fed operates, communicates and manages its balance sheet,” Floro said.