Trump Nominates Kevin Warsh as Fed Chair as Iran War Complicates Path for Rate Cuts
The president Donald Trump officially appointed Kevin Warsh to replace Jerome Powell as chairman of the Federal Reserve, but the widening US-Israeli war with Iran creates uncertainty about interest rates that quickly dampens the president’s ambitions.
Trump sent his nomination to the Senate on Wednesday, officially naming Warsh as his choice to lead the Fed for four years. Powell’s current term expires in May, and Trump publicly announced Warsh as his pick in January.
Warsh, a former Fed governor who served during the Global Financial Crisis, has advocated shrinking the central bank’s balance sheet and lowering interest rates to benefit consumers and consumers.
However, he may face stiff opposition from the 12-member Federal Open Market Committee. This week, several members expressed concern about interest rate cuts after Israel and the US went to war with Iran, warning that rising oil prices could lead to renewed inflation.
Minneapolis Fed President Neel Kashkaria voting member of the FOMC, said on Tuesday that the war in Iran could create conditions that allow for a temporary pause in rate cuts.
“Before Iran, it seemed like things were going well,” Kashkari told the Wall Street Journal about inflation. Now, he says the Iran war could complicate that picture by bringing higher inflation on one hand, but a shock to consumer confidence on the other.
“Not being able to balance those two things probably puts a lot of weight on staying strong for a while,” he said.
The FOMC will take its next vote on rate policy on March 18, and is widely expected to keep the Fed’s overnight benchmark rate unchanged in the current range of 3.5% to 3.75%.
Financial markets and forecasters now also expect no rate changes at meetings in April and June, leaving the possibility that no cuts will come until July or even September.
The president of the Cleveland Fed Beth HammackAnother FOMC voter, has been very skeptical about further rate cuts this year, and warns that rate relief may be a long way off.
“I think we can hold on for a long time,” Hammack told The New York Times this week. “We’re in a good place from a policy perspective.”
The president of the New York Fed John Williamsa strong vote on the FOMC and a close friend of Chairman Powell, and they sounded a warning in a speech on Tuesday.
“Monetary policy is currently well positioned to support labor market stability and return inflation to our 2% target,” Williams said in remarks at a conference in Washington, DC.
Williams added that an interest rate cut would “finally be guaranteed” if inflation continues to moderate, language that appears to point to a possible reduction later in 2026.
The Fed uses high interest rates to fight inflation, and low rates to stimulate the labor market, in keeping with the central bank’s dual mandate of price stability and high employment.
Although the Fed does not directly set mortgage rates, rate policy and inflation expectations play an important role in influencing the bond markets that determine the mortgage rates paid by consumers.
Last week, mortgage rates hit a three-year low of 5.98%, according to Freddie Mac. However, with oil prices rising this week, inflation fears are in bond markets, which may reverse that bearish trend.
It develops the story, more to follow.
