Kevin Warsh, the nominee for the next chair of the U.S. Federal Reserve (Fed), is likely to clash with the Fed's internal stance over currency policy plans. Experts said it will be difficult for the Fed to cut rates for the time being even under Warsh's leadership.
Reuters reported on the 28th that after Warsh takes the chair, he is expected to clash with existing Fed Commissioners over the direction of currency policy. Like President Donald Trump, Warsh has hinted at room for rate cuts, but within the Fed, opinions reportedly lean toward holding rates steady to rein in inflation.
Warsh has signaled he would overhaul currency policy on a large scale. At a hearing on the 21st, he said, "Inflation is the result of policy choices, and the Fed must take responsibility for price stability without excuses," adding, "A fundamental regime shift is needed in how currency policy is conducted." Jerome Powell's term as the current Fed chair runs through May 15.
However, a majority of current Fed policy Commissioners appear to judge inflation risks as greater than a cooling labor market. While recent job gains have slowed, the U.S. jobless rate remains low as labor supply itself has declined due to reduced immigration and aging. Reuters interpreted this as hard to read as a sign of an economic downturn and as a factor weakening the case for rate cuts.
Prices also look likely to weigh on rate cuts. Warsh assessed that prices are improving, but within the Fed there are concerns that tariff policy and geopolitical variables, especially higher oil prices from the Iran war, could push prices back up. In fact, core personal consumption expenditures (PCE) inflation still far exceeds the 2% target.
Market rate expectations are conservative as well. The Fed has kept the benchmark rate in a 3.5%–3.75% range since December last year, and markets also see limited chances of rate cuts this year. Christopher Waller, a Fed governor, recently said he is more wary of inflation than the labor market. Citing the 1970s, he explained that factors dismissed as temporary shocks at the time ultimately stoked inflation expectations.
Reuters concluded that the key variable for future currency policy ultimately depends on whether internal consensus forms at the Fed. With most Fed Commissioners prioritizing price stability, it will be difficult to push through the level of aggressive rate cuts the Donald Trump administration expects.
Local outlets including CNBC, the New York Times (NYT), and the Wall Street Journal (WSJ) also said that the "wait-and-see" stance Jerome Powell established is likely to continue for the time being under Warsh's leadership.
Roger Ferguson, an economist and former Fed vice chair, said in an interview with CNBC that day that "looking at the Fed's dual mandate, (FOMC Commissioners) will judge the labor market to be broadly stable, but on prices, they will see plenty left to do because of sticky 3% inflation that is slow to come down." He added, "For the time being, the Fed will likely conclude to watch the situation and hold steady."