Trump finally gets his man at the Fed. Will Kevin Warsh disappoint him?

It took 8 1/2 years, but on Wednesday President Donald Trump was finally able to reverse one of the few mistakes he admits he made as president. In November 2017, Trump chose Jerome Powell to head the Federal Reserve, choosing someone he considered docile over the charismatic but young former Fed governor Kevin Warsh. Trump has regretted it ever since.

As the Senate approached Wednesday’s approval, the question that occupied the markets was whether Trump would regret this decision as well. Trump said in January that Fed chairmen “will change once they are hired.” If Warsh loses Trump’s support, the new Fed chair may not have the congressional support that helped Powell resist Trump.

Whether Warsh can deliver on his promised “regime change” mission for the Fed will depend on his ability to navigate this extraordinarily difficult political environment. But even though he begins his term at a significant political disadvantage compared to Powell, Warsh’s history and relationship with Trump suggest the new president is more likely to chart a more independent path than his critics believe. And it can do so in a cooperative manner that may surprise those prepared for immediate conflict.

Warsh, 56, was confirmed Wednesday with just 54 votes, with the only Democratic “yes” vote being Sen. John Fetterman of Pennsylvania. This is the weakest support a Fed chair has received since 1977, when his position was confirmed by the Senate. The previous record low was held by Democratic nominee Janet Yellen in 2014, who received 56 votes, 11 of which were from Republicans.

Among those who voted against Warsh this time was Minority Leader Senator Chuck Schumer (DY). This marks a reversal from 2006, when Schumer supported Warsh for the Fed governorship because Warsh “clearly understands that the Fed must be independent, non-ideological, and non-partisan.” Warsh was unanimously confirmed that year.

Powell has found a vital ally in the Senate in the face of Trump’s attacks. Sen. Thom Tillis, R-N.C., threatened to delay Warsh’s confirmation until the Justice Department drops its criminal investigation into the Fed. U.S. Attorney for the District of Columbia Jeanine Pirro did so in April, clearing the way for Warsh.

“Powell met with U.S. senators twice as often as his predecessors.” University of Maryland researchers He examined the calendars of Fed chairmen, found in a study published in April.

Most longtime Fed watchers have already considered Warsh a lost cause because they view him as either deluded into thinking he could navigate the Fed’s sclerotic bureaucracy or because Warsh’s most prominent progressive critic, D-Mass. They think he’s just a “sock puppet” for Trump, as Senator Elizabeth Warren called him.

But Warsh is no bystander who stumbled into arguably economics’ most influential role. Trump publicly debated whether to give him the job. HE The Fed offered its position To Scott Bessent, now treasury secretary, before he even won the 2024 election.

Last year, Warsh advises Trump not to fire PowellThis was a decision that would likely benefit Warsh personally, at the expense of the Fed’s credibility. She won Trump’s nomination in January amid a whispered campaign that her worries about inflation and tariffs made her a bad match for this president.

Warsh is no one’s liberal idea. He has publicly taken a conservative stance since successfully running for president of Stanford University’s student senate. He went on to work as a research assistant to his intellectual idol, the arch-conservative economist Milton Friedman. But John Cogan, the Stanford economist who taught Warsh as an undergraduate and now counts him as a friend, said that what makes Warsh politically powerful is less his ideology than his ability to connect his own set of beliefs to the ideas and ambitions of others.

“I know him as someone who can understand other points of view and is willing to find common ground,” Cogan said.

Warsh will need to put his skills as a political operator to work both inside and outside the Fed’s walls.

Within the Fed, Warsh will need to create a committee of interest rate voters alarmed by the risk of resurgent inflation. Federal government data released this week showed the consumer price index jumped to 3.8% in April, driven by the energy shock caused by the Iran war. Even if we eliminate volatile energy prices, so-called core inflation rose for three consecutive months; This has led some Fed members to worry that they are not setting interest rates high enough to limit price increases, no matter what happens in the Middle East.

The Fed will not have much appetite for the rapid rate cuts that Trump is demanding. The President said it would happen soon Warsh will be disappointed if he fails to deliver.

According to Warsh, evidence of this lost credibility appears in inflation expectations: Neither exists market participants nor Consumers participating in the Fed’s survey We expect inflation to return to the Fed’s 2% target within five years.

Warsh will try to reset those expectations by shifting the Fed away from committing to providing forward guidance on where interest rates will go, revamping communications so the agency can speak more with one voice, updating the data sources the Fed relies on, and striking a new bargain with the Treasury Department on how the two will share responsibility for managing the economy.

Will Warsh be able to achieve all this and deliver the interest rate cut that Trump expects? The market doesn’t think so and gives it a 1% chance of lowering rates this year. According to CME FedWatch.

There’s a clear chance that Trump will implode if Warsh doesn’t implement the cuts in June. But this idea assumes Warsh’s passivity. The other option is that the Fed chairman, who has spent nearly a decade preparing for this moment, continues to convince the president that he can deliver the golden age that Trump so desperately wants. It wouldn’t be the first time Trump has suddenly pivoted to a politically expedient idea from someone he trusts.

Warsh’s divided support may say more about how the nation is changing than his politics. His pitch was that he understands better than anyone how to ensure the Fed’s lasting influence as a stabilizing force for Americans’ livelihoods despite broader political disruption.

Now he has a chance to prove himself. If it fails, a bastion of U.S. economic power will weaken with it.