By Ann Saphir
March 4 (Reuters) – President Donald Trump on Wednesday officially nominated former Federal Reserve Governor Kevin Warsh to be the U.S. central bank’s next chair, the White House said, putting the president one step closer to installing a rate-cut-friendly Fed chief.
But there are big hurdles both to Warsh’s path back to the Fed and, once confirmed as Fed chair, his way forward to delivering the rate cuts Trump wants.
Warsh, who would take over from Jerome Powell after his leadership term ends on May 15, would occupy the seat currently held by Fed Governor Stephen Miran, the White House notice shows. Miran, also a Trump appointee, has been a leading advocate for interest-rate cuts since joining the Fed in September.
Trump, who frequently and publicly rails against Powell for not cutting rates quickly or deeply enough, had said he would make support for lower borrowing costs a condition for any Fed chair candidate. Warsh has indicated that he feels productivity growth driven by artificial intelligence creates an opening for reducing interest rates without stoking inflation.
The Republican-controlled Senate Banking Committee is expected to move forward with a confirmation hearing, and its Republican members have said they see Warsh as well qualified and a good pick for the job.
One of them, however, Republican Senator Thom Tillis, has promised to block any Fed nomination as long as a Department of Justice investigation into Powell regarding his testimony to the panel last summer about central bank building renovations in Washington remains open.
Tillis says the probe is frivolous and amounts to a threat to the Fed’s political independence, widely considered essential to its ability to keep inflation under control and steer the economy to a healthy footing. Without Tillis’ vote, the committee’s slim Republican majority does not have the power to override unified Democratic opposition.
“Kevin Warsh would be nothing more than Donald Trump’s sock puppet at the Fed,” the panel’s top Democrat, Elizabeth Warren, said in a statement, a charge she also leveled at Miran during his nomination.
A spokesman for the panel did not immediately respond to a request for information on the timing of a hearing.
If Warsh is able to overcome the hurdle to his Senate confirmation, he faces what could be an uphill battle convincing colleagues to support the rate cuts Trump wants, given the strength of the latest economic data showing a stabilizing labor market and continued above-target inflation, and doubts about how quickly AI can deliver inflation-neutralizing economic growth.
Many of the Fed’s policymakers say they support waiting for inflation to ease before reducing rates again.
The five-day-old conflict in Iran, which sent oil prices dramatically higher, raises new questions about the timing of any cooling in inflation. Financial markets are betting against any Fed rate cut until at least July.
(Reporting by Ann Saphir; Editing by Chizu Nomiyama and Andrea Ricci )
Comments