The chances that Kevin Warsh, nominated by U.S. President Donald Trump as the next Federal Reserve (Fed) chair, will win confirmation from the U.S. Senate have grown. As the Ministry of Justice probe that had been pressuring current Fed Chair Jerome Powell on all fronts ended, a senior Republican lawmaker who held the key to passage abruptly withdrew opposition.
On the 26th (local time), according to a roundup of major outlets including CNBC, Republican Sen. Thom Tillis appeared on NBC and said, "I am fully prepared to move forward with Warsh's confirmation," reversing his previous stance.
The Senate Banking Committee, which confirms the Fed chair, is currently narrowly composed of 13 Republicans and 11 Democrats. With all Democratic members opposed, the defection of even one Republican, Sen. Tillis, would have put the confirmation in jeopardy. But as Tillis shifted to support, nominee Warsh is set to clear the committee hurdle.
Tillis had refused to process the confirmation, citing concerns about undermining the Fed's independence. He argued that the Ministry of Justice was using allegations of excessive expenditure on expense for renovations at the Fed's headquarters to strong-arm Powell. The opposition shifted, however, when the Ministry of Justice on the 24th officially announced the end of the probe. "We received firm assurance that the Ministry of Justice will not be used as a political weapon threatening the Fed's independence," Tillis said, adding, "We clearly confirmed that the current investigation has ended fully and comprehensively."
On Wall Street and in U.S. political circles, the Ministry of Justice probe had been interpreted as a blatant attempt to rein in the Fed. The dominant view was that it was a political move to pressure Powell, who has not acceded to calls for rate cuts. With this legal risk lifted, attention is also focusing on Powell's future. The current Fed chair term runs through May 15, and his governorship runs through January 2028. As Warsh's confirmation firms up and legal pressure disappears, the likelihood has grown that Powell will resign both the chair and governorship next month.
Warsh, set to take the helm, has signaled a sweeping shift in currency policy. At his hearing on the 21st, he said, "Inflation is the result of policy choices, and the Fed must be accountable for price stability without excuses," adding, "A fundamental regime change is needed in how monetary policy is conducted." Experts likewise predicted, "If Warsh takes office, the Fed will be improved into a highly credible institution focused on its price stability mandate."