What the change means for consumers
President Donald Trump has chosen Kevin Warsh to replace Jerome Powell as chairman of the Federal Reserve. In keeping with the president’s pressure to lower interest rates, Warsh is expected to lend further support to lowering the Fed’s key benchmark interest rate later this year.
“I have known Kevin for a long time and I have no doubt that he will go down as one of the GREAT Fed Chairmen, perhaps the best,” Trump said in a post on Truth Social on Friday.
Fed board members are nominated by the president but must be confirmed by the Senate. If confirmed, Warsh would replace Powell when his term ends in May, opening the door to a potential shift in monetary policy direction in the second half of 2026.
Warsh, a former Fed governor with a Wall Street background, has criticized the central bank’s past handling of inflation and told CNBC in July that its hesitation to cut interest rates had undermined its credibility.
“Given his past statements and actions in his previous role as Fed Governor, Warsh was by far the most hawkish of the final four candidates for Fed Chair,” said Brett House, an economics professor at Columbia Business School.
Trump said keeping the federal funds rate too high makes it harder for businesses and consumers to borrow money and puts the United States at an economic disadvantage against countries with low interest rates.
But following this week’s two-day Federal Open Market Committee meeting, the Fed left its benchmark interest rate unchanged, providing little relief to Americans struggling to keep up with higher borrowing costs.
The Fed’s benchmark determines the rate banks charge each other for overnight lending, but it also affects nearly all consumer borrowing and savings rates.
In general, short-term interest rates, like credit card rates, are closely tied to the Fed’s benchmark. Long-term interest rates, like mortgage rates, are also more affected by inflation and other economic factors.
“There was no one who would take this job and not cut rates in the short term,” David Bahnsen, chief investment officer of The Bahnsen Group, said on CNBC’s “Squawk Box” on Friday.
Hoover Institution Economics Fellow and Stanford Graduate School of Business lecturer Kevin Warsh speaks at the Sohn Investment Conference in New York, USA, on May 8, 2017.
Brendan McDermid | Reuters
“It’s too early to judge Kevin Warsh as Fed chair,” said Mark Higgins, senior vice president at Index Fund Advisors and author of “Investing in U.S. Financial History: Understanding the Past to Predict the Future.”
“What is clear from history is that allowing inflation to remain at high levels for too long makes it much harder and much more painful to extinguish it later,” Higgins said. he said.
In the 1970s, then-President Richard Nixon Fed Chairman pressures Arthur Burns to keep interest rates low – and give the economy a boost before the 1972 presidential election.
HE prepare the scene Economists now say that inflation is out of control. Over the following decade, consumer prices rose and the inflation rate peaked at around 15 percent In 1980, this remains the highest rate since the post-World War II era.
Ultimately, the Fed, under new leadership, raised interest rates Going to punitive levels to rein in inflation led to rising borrowing costs in the 1980s.
“The message to households is disturbing but important,” Higgins said. “Accepting shorter, more severe economic pain now is preferable to prolonged inflation that continues to erode purchasing power. History is clear on this point.”
