(Bloomberg) – President Donald Trump has emphasized that he wants Kevin Warsh to lead the Federal Reserve independently, seeking to minimize investor concerns that he would pressure the new central bank chief over monetary policy decisions.
Warsh, who has promised the biggest overhaul of the U.S. central bank in decades, was sworn in on Friday in a White House ceremony as the 17th Fed chairman.
“I want Kevin to be completely independent. I want him to be independent and just do a great job. Don’t look at me, don’t look at anyone, just do your job and do a great job,” Trump said during the inauguration ceremony.
Warsh takes office at a tense time for the economy and the central bank. Inflationary pressures have intensified in recent months, driven by the impact of the war in the Middle East on energy supplies. Investors now expect an interest rate rise by December after new data released on Friday showed that
Meanwhile, the Fed has been heavily criticized by Trump over the past year for not cutting interest rates quickly enough. Trump criticized the Fed for allowing itself to be “distracted by concerns far removed from its core mission and mandate,” such as climate change and diversity initiatives, but refrained from commenting on the rate decisions.
“Kevin will safeguard the integrity of the Fed. They will make their own decisions and hopefully make them well, but they will always listen to Kevin,” Trump said.
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However, this scenario of persistent inflation and political pressure has fueled concern among investors and analysts that the Fed’s independence is threatened. At his confirmation hearing for the post, Warsh repeatedly pledged to act independently, even as he criticized the central bank for what he called misappropriation and its response to rising inflation during the pandemic.
While previous Fed chair nominees have made joint appearances with the president at the White House, Warsh’s swearing-in ceremony is sure to attract the attention of investors and Fed watchers, who will be looking for comments from Trump that reiterate his demand for lower interest rates, possibly setting the tone for relations between the two in the coming months.
Some of the president’s allies are eager to help Warsh avoid the same fate as outgoing President Jerome Powell, who has been a favorite target of Trump since his first term. Officials attentive to market swings and aware of the importance of the Fed’s independence to bond traders, such as Treasury Secretary Scott Bessent and Fox Business’ Larry Kudlow, made public comments giving Warsh support for keeping rates unchanged for a while.
Similar messages have been conveyed privately, according to people familiar with the matter, and the effort may be working, at least for now.
Asked in an interview with the Washington Examiner on Tuesday whether he believed Warsh would lead the Fed to cut interest rates, Trump said he would let the new Fed chairman “do whatever he wants.”
Warsh is not the first Fed chairman to take the oath of office in the president’s presence. George W. Bush attended Ben Bernanke’s 2006 inauguration at central bank headquarters, while Ronald Reagan hosted Alan Greenspan’s ceremony at the White House in 1987.
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The U.S. Senate confirmed Warsh as Fed chairman by a 54-45 vote in early May. That vote represented the smallest confirmation margin in history for a Fed chairman, reflecting partisan divisions in Congress and concerns among Democratic lawmakers that Warsh might give in to Trump’s demands on interest rates.
Warsh, one of the richest officials in Fed history, promised to divest some of his assets before taking office. Documents released by the Office of Government Ethics earlier this week showed that he sold most of them, although those documents do not indicate whether all the assets were sold and it is not yet clear whether he has disposed of everything.
‘Regime Change’
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Warsh promised to promote “regime change” at the central bank, including reducing the Fed’s balance sheet, which currently stands at $6.7 trillion, establishing a new framework for analyzing inflation and changing the way the institution communicates with the public.
His most immediate challenge may come from monetary policy. Before receiving Trump’s nomination for Fed chairman, Warsh made arguments for why interest rates could be lowered. But Fed officials have shown little interest in implementing short-term reductions amid concerns about inflation, which accelerated in April at the fastest pace since 2023.
Monetary policy committee members kept interest rates unchanged last month, in a range of 3.5% to 3.75%, but revealed a growing divide over how to signal the direction monetary policy might take as the war with Iran continues to roil energy markets. Four members voted against the decision, including three who objected to the language used in the post-meeting statement that suggested the central bank would eventually resume rate cuts.
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The 8-4 vote marked the first time since October 1992 that four committee members disagreed with a decision by the Federal Open Market Committee. The minutes of that monetary policy meeting showed that most members warned that they would likely need to consider raising interest rates if inflation remained persistently above the 2% target.
Fed Governor Christopher Waller, one of the most influential policymakers, said on Friday that he now supports this change in the Fed’s policy statement and said he believes the central bank’s next move is equally likely to be an increase or a cut. The Fed’s rate-setting committee will meet again on June 16-17 in Washington.
The leadership transition at the Fed is also made unusual by Powell’s decision to remain on the Board of Governors, breaking the precedent of previous presidents leaving the institution at the end of their terms. His term as governor runs until January 2028.
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Powell said the constant legal threats against him and the central bank left him no choice but to remain in office. The last outgoing president to remain on the board was Marriner Eccles, who continued as a member of the board of directors until 1951, after his term as head of the central bank ended in 1948.
Trump tried to fire Fed Governor Lisa Cook, and his Justice Department launched a criminal investigation into a $2.5 billion renovation of the central bank’s Washington headquarters, an investigation that delayed Warsh’s confirmation before federal prosecutor Jeanine Pirro announced the dismissal of the case.
Powell has said he will remain in office to support the Fed’s independence from political interference and not to undermine his successor.
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