(Bloomberg) – President Donald Trump emphasized that he wants Kevin Warsh to lead the Federal Reserve in an independent manner, aiming to minimize investors’ concern that he would pressure the new head of the central bank regarding monetary policy decisions.
Warsh, who promised the greatest overhaul in decades of the U.S. central bank, took office on Friday in a White House ceremony as the 17th chairman of the Fed.
“I want Kevin to be completely independent. I want him to be independent and simply 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 assumes the role at a tense moment for the economy and the central bank. Inflation 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 increase by December, after new data released on Friday showed that consumers’ expectations for long‑term inflation reached the highest level in seven months.
Meanwhile, the Fed has been harshly criticized by Trump over the past year for not lowering interest rates quickly enough. Trump criticized the Fed for allowing itself to be “distracted by concerns far removed from its mission and primary mandate,” such as climate change and diversity initiatives, but he declined to comment on rate decisions.
“Kevin will safeguard the integrity of the Fed. They will make their own decisions and, hopefully, they will do so well, but they will always be listening to Kevin,” Trump said.
However, this scenario of persistent inflation and political pressure has fueled concerns among investors and analysts that the Fed’s independence is at risk. In his confirmation hearing for the post, Warsh repeatedly pledged to act independently, even criticizing the central bank for what he called a deviation from its functions and for its response to rising inflation during the pandemic.
Although previous nominees for the Fed presidency had appeared with the president at the White House, Warsh’s inauguration ceremony will certainly attract the attention of investors and Fed observers, who will seek Trump’s comments reiterating his demand for lower interest rates, possibly setting the tone for the relationship between the two in the coming months.
Some of the president’s allies are eager to help Warsh avoid the same fate as the outgoing president, Jerome Powell, who has been one of Trump’s favorite targets since his first term. Authorities attuned to market swings and aware of the importance of the Fed’s independence for bond traders, such as Treasury Secretary Scott Bessent and Larry Kudlow of Fox Business, publicly offered backing for Warsh to hold rates steady for a while.
Similar messages were conveyed in private, 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 push the Fed to cut rates, Trump said he would let the new Fed president “do whatever he wants.”
Warsh is not the first Fed chairman to take the oath in the presence of the president. George W. Bush attended Ben Bernanke’s swearing-in at the Fed’s headquarters in 2006, while Ronald Reagan hosted Alan Greenspan’s ceremony at the White House in 1987.
The U.S. Senate confirmed Warsh as Fed chairman by a 54-to-45 vote in early May. That vote represented the narrowest confirmation margin for a Fed chair in history, reflecting partisan divisions in Congress and concerns among Democratic lawmakers that Warsh might yield to Trump’s demands regarding interest rates.
Warsh, one of the wealthiest 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, though those documents do not indicate if all assets were sold and it remains unclear whether he has disposed of everything.
‘Regime Change’
Warsh pledged to pursue a “regime change” at the central bank, including shrinking the Fed’s balance sheet, which currently stands at $6.7 trillion, establishing a new framework to analyze inflation, and changing the way the institution communicates with the public.
His immediate challenge may come from monetary policy. Before receiving Trump’s nomination for the Fed chair, Warsh had argued why rates could be cut. But Fed officials show little appetite for implementing cuts in the near term, amid concerns about inflation, which accelerated in April at the fastest pace since 2023.
The Federal Open Market Committee members kept rates unchanged last month in a range of 3.5% to 3.75%, but they revealed a growing split on how to signal the direction monetary policy might take, as the war with Iran continues to affect energy markets. Four members voted against the decision, including three who opposed the language used in the post-meeting statement, which suggested the central bank would eventually resume cuts.
The 8-to-4 vote marked the first time since October 1992 that four FOMC members dissented from a policy decision. The minutes of that monetary policy meeting showed that most members warned they would need to consider raising 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 to the Fed’s policy statement and stated that the next move by the central bank is equally likely to be a hike 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 unusual due to Powell’s decision to remain on the Board of Governors, breaking with the precedent of former presidents leaving the institution at the end of their terms. His term as a governor runs through January 2028.
Powell said that ongoing legal threats against him and the central bank left him no option but to remain in office. The last outgoing president to stay on the board was Marriner Eccles, who remained a board member until 1951 after his term as head of the central bank ended in 1948.
Trump had attempted to oust Fed Governor Lisa Cook, and his Department of Justice launched a criminal investigation into a $2.5 billion renovation of the central bank’s headquarters in Washington, an investigation that delayed Warsh’s confirmation before federal prosecutor Jeanine Pirro announced the case’s dismissal.
Powell stated that he would stay in his role to support the Fed’s independence from political interference and not to jeopardize his successor.
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