President Donald Trump has made it clear he expects his choice for Federal Reserve chair to quickly cut interest rates once he takes office. Yet Americans shouldn’t pencil in lower borrowing costs for mortgages, auto loans, or business loans just yet.
“Warsh’s stated outlook is much more consistent with an extended hold than additional cuts,” Aditya Bhave, head of U.S. economics at BofA Securities, wrote in a client note.
Here’s what you need to know about Warsh and what he will face as next Fed chair:
Warsh, who was a member of the Fed’s governing board from 2006 to 2011, regularly argued for rate cuts last year as he sought Trump’s nomination to replace Powell. But since being named in late January, he has kept quiet, and hasn’t made any public comments since the Iran war started Feb. 28.
Christopher Waller, a Fed governor who voted in favor of a rate cut in January, last week expressed concerns that rising inflation could mean the Fed would have to stand pat. He also suggested that with the unemployment rate a still-low 4.3%, rate cuts might not be necessary.
And Treasury Secretary Scott Bessent said last week that if the Fed wanted “to wait for some clarity” before cutting rates, “I understand that,” a statement widely seen as providing some cover for Warsh to keep rates unchanged for at least a few months.
For now, Wall Street investors see little chance for a rate cut until October 2027, according to futures pricing.
Certainly, if inflation cools in the coming months and unemployment worsens, more Fed officials could end up supporting a rate cut. The economy has been volatile for the past year, at times looking healthy and other times anemic.
Next week, at a meeting likely to be Powell’s last, the committee is widely expected to keep rates where they are.
Stephen Miran, a governor Trump appointed last September, was the only official to vote for a rate cut in March and has voted to cut rates at every meeting he has attended. But Warsh will replace Miran. Another governor Trump named in his first term, Michelle Bowman, has also occasionally dissented in favor of a rate cut.
Members of the Fed’s board typically seek to support the chair, former Fed officials say. But rarely can a chair single-handedly and quickly swing an entire committee in his or her direction.
Yet that was after Greenspan had been chair for several years and had built support on the committee, Faust said.
“Warsh comes in with essentially none of the gravitas that Greenspan had,” Faust said. “Instead, Warsh comes in with the baggage that Trump has really loaded on him. It’s not Warsh’s fault, but Trump has led to legitimate questions about whether he’ll act independently.”
One way to establish independence would be for Warsh to not cut rates right away, economists have said.
In his remarks at Tuesday’s hearing, Warsh acknowledged that “we have a short window to try to bring inflation back down to where it should be,” which some economists said sounded more like an argument for rate hikes, rather than cuts.
Warsh also said that the job market is essentially at what the Fed considers “maximum employment,” or the lowest the unemployment rate can go before it starts to push up inflation. That also suggests the Fed doesn’t need to cut to boost hiring.
Before being nominated, Warsh had often argued that artificial intelligence would accelerate growth and make the economy more efficient. Similar to the Internet, he often said, it would allow the Fed to reduce interest rates without worrying about inflation.
At his hearing, Warsh repeated his claim about AI, but added, “we don’t know that, we can’t bank on that,” which struck many economists as a step back from his previous stance.
Warsh’s views “didn’t have a lot of clarity going in,” Claudia Sahm, chief economist at New Century Advisers and a former Fed economist, said. “And then he muddied the waters. There were so few specifics.”
