Donald Trump Advises Incoming Fed Chair Kevin Warsh to Chart Independent Course

Kevin Warsh Sworn in as 17th Chair of the Federal Reserve

President Donald Trump emphasized the importance of Federal Reserve Chair Kevin Warsh's independence during his swearing-in ceremony at the White House on Friday. Warsh, who has promised the biggest shakeup in decades at the US central bank, is set to lead the institution at a tense moment for the economy and the central bank.

The Fed is facing pressure due to reaccelerating price pressures, driven by the impact of war in the Middle East on energy supplies. Investors now see an interest-rate increase coming by December after fresh data showed consumer expectations for longer-term inflation jumped to their highest level in seven months. The Fed has been battered for the past year by Trump for not cutting interest rates quickly enough.

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In his confirmation hearing, Warsh pledged to act independently, even as he criticized the central bank for what he called mission creep and its response to the pandemic inflation surge. Warsh's swearing-in ceremony is sure to draw scrutiny from investors and Fed watchers for any commentary from Trump that reprises his demand for lower interest rates.

Warsh's allies, including Treasury Secretary Scott Bessent and Fox Business' Larry Kudlow, have publicly made comments giving Warsh cover to leave rates unchanged for a time. The effort may be working, at least for now, as Trump said in an interview with the Washington Examiner on Tuesday that he was going to let the new Fed chief "do what he wants to do."

Warsh, one of the wealthiest Fed officials in history, has promised to bring "regime change" to the central bank, including by shrinking the Fed's $6.7 trillion balance sheet, establishing a new framework for analyzing inflation, and changing how the institution communicates with the public. His most immediate challenge may come on the policy front, as Fed officials are showing little appetite to deliver near-term reductions amid concerns about inflation.

The leadership transition at the Fed is also made unusual by outgoing Chair Jerome Powell's decision to remain on the Board of Governors, breaking with the precedent of past chairs leaving the institution at the end of their leadership terms. Powell's term as a governor runs to January 2028, and he has said he's staying on to support the Fed's independence from political interference and not to undermine his successor.

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