The Federal Reserve is famously independent, but in this political atmosphere, no one is left unscathed.
“I cannot remember a confirmation hearing for a Fed chair that had this type of political overtone to it,” says Dr. Bob Dieli, economist with MacKay & Company. “You have to feel sorry for Warsh. He’s going to take some blows some other people up for confirmation wouldn’t.”
Warsh is Kevin Warsh, President Donald J. Trump’s nominee announced Friday to replace Jerome Powell as chairman of the Federal Reserve. Warsh, 55, is a former governor of the Fed, who was the youngest governor ever when he was appointed at 35. He resigned in 2011 during the administration of President Barack Obama over disputes on the policy of quantitative easing, where the Fed buys government bonds in an effort to lower long-term interest rates, boost spending and investment and stimulate growth. Warsh was succeeded by Jerome Powell, who is now chair of the Fed, in 2012.
Prior to his stint on the Fed, Warsh was a mergers and acquisitions specialist at Morgan Stanley. During the financial crisis of 2008, he helped manage the Fed’s response to the crisis by serving as bridge to Wall Street and was known as a conservative voice on the board.
Can Warsh be confirmed?
Any confirmation would be necessarily politically fractious, but one at this point in time is particularly so, Dieli says. Some senators are displeased with how those confirmed in 2025 performed and the mood between the Capitol and the White House is sour as a partial government shutdown looms.
Warsh, who also previously served in the Bush White House, is a choice from “central casting,” Trump said on his social media platform Friday. “I have known Kevin for a long period of time, and have no doubt he will go down as one of the GREAT Fed Charimen, maybe the best.”
Sen. Thom Tillis (R-N.C.) has resolved to oppose the confirmation of any nominee for the Fed until the case involving Lisa Cook, a governor who is embroiled in a court case over whether Trump can fire members of the Fed’s board. Tillis is a member of the Senate Banking, Housing and Urban Affairs Committee, which has 13 Republicans and 11 Democrats. Tillis’ refusal would set up a locked committee that could leave a Fed chair nomination without a recommendation of approval by the full Senate.
Should Warsh succeed and be confirmed, Dieli says his first meeting as chairman would be in June. And even then, contention will remain. Traditionally, former Fed chairs have left the board completely, even if they had time remaining on their term.
“There was none of this ‘I’m going to hang around,’” Dieli says. “The objective was to make the transition as smooth as possible.”
Powell hasn’t said whether he intends to vacate his seat after his chairmanship is over.
Furthermore, Warsh may be walking into a board unusually divided. Dieli says board votes were almost always unanimous, with the governors voting with the chairman. However, in the last two votes, there have been notable dissents. There were three in December and two in January’s vote to hold interest rates steady. Dieli called the dissents “extraordinary.”
Warsh on monetary policy
Warsh has historically been an inflation hawk who worked for stable prices and low inflation. In the run up to his nomination, he called inflation “a choice” in a May speech on the role of central banks and the resilience of the U.S. economy.
“There’s been a tendency over the last several years during the big inflation era a few years ago to now describe that as being driven by wars, pandemics and supply chains,” Warsh said in the discussion. “Those are cyclical changes in prices; they absolutely matter to households and businesses. But in my view, that’s not inflation.”
He also told Fox Business in March tariffs don’t cause inflation, bad economic policies do, reiterating inflation was a Federal Reserve choice.
“The truth of the matter is inflation is a choice and the Fed has made a lot of bad choices,” he says, pointing to reductions in government spending as the way to lower it.
“I would invite Mr. Warsh to come to (Heavy Duty Aftermarket Dialogue) HDAD and have the conversation with the fellow who wanted to know where the tariff was on his invoice,” Dieli says. That invoice will be surveyed by the Bureau of Labor Statistics, which will note the price went up. “If Mr. Warsh can tell me how that is not inflation, I will consider myself educated and a better person.”
[RELATED: Tariff price hikes masked aftermarket weakness in 2025]
Broadly and very generally speaking, Dieli says Warsh is right. Government does affect prices at a macroeconomic policy but “brake shoes don’t care who the president is.”
To tell how markets see Warsh’s nomination, Dieli says to look at the 10-year Treasury bond. At the close of business on Thursday, the rate was at 4.227%. Just after Friday’s announcement, it rose to 4.279%.
“The bond market is telling you the willingness of people to lend money, specifically to the government,” Dieli says. The lower that number is, the more confident people are about the state of play and the bond market doesn’t need the Fed in order to express its opinion. Any increases are bad news, Dieli says.
Warsh on Fed independence
Much has been made about the independence of the Federal Reserve as Trump pressured Powell and the Cook case wound its way through courts. The Fed isn’t part of the federal government like the Department of the Treasury is. Instead, it’s owned by the member banks and remits several billion dollars every year to Uncle Sam. Board members (governors) are appointed by the president and serve staggered, 14-year terms. Governors must be confirmed by the Senate.
Dieli says the independence of the Fed is the backbone of America’s good financial standing around the globe. If that independence is threatened, say by a decision the president can fire Cook, countries holding U.S. debt may decide it’s too risky to extend more credit. It’s a situation we don’t even want to think about, he says.
Another such situation is if Warsh, as Fed chair, deviates from the pause-and-pivot strategy the Fed has held since the days of Alan Greenspan. Pause-and-pivot refers to a strategy of clearly telegraphing what the Fed will do before it does it, giving markets time to react.
It’s a lot to think about, but Dieli says to remember while all of the confirmations and court cases are going on, the economy is still running. Data is still being generated and some of it, for the first time, will reflect the actual impact of Trump’s tariffs.
“Last year, we brought in a lot of things ahead of the tariffs,” he says. “We are now refilling the pipeline under the new tariff regime.”
As inventories are restocked, the economy will come more into focus.
“A lot can happen between now and June,” Dieli says. “There’s a lot of turbulence in front of us."
