Washington: Warsh sworn in as new Fed chair, Powell stays on as governor
Kevin Warsh, the 56-year-old former Fed governor, was sworn in at the White House as the eleventh chair of the Federal Reserve in the modern era, under direct pressure from Donald Trump for rate cuts despite rising prices.
Washington on Friday afternoon got a new Federal Reserve chair: Kevin Warsh, at the White House and in the presence of President Donald Trump, was sworn in as the eleventh head of the United States central bank in the modern era. Warsh, who is no stranger to the Fed, having served as a governor from 2006 to 2011, takes over at a moment when inflation in the United States continues to rise on the back of higher energy prices, the consequences of the war with Iran, and US tariffs on imports from the European Union and China, according to reports from CNBC and the Washington Post.
For Serbia and European economies, the change at the top of the Fed is not a purely internal US matter. The Federal Reserve is the only central bank whose interest-rate decisions have an immediate effect on capital flows in developing countries, on the price of dollar liquidity, and indirectly on the euro-dollar exchange rate, which determines how much the National Bank of Serbia can buy and sell on its regular operations. If Warsh, over the next several months, listens to the political pressure for fast rate cuts, Belgrade will have to factor in carefully the jump in the euro-dollar rate and the potential outflow of portfolio investment from Serbian public debt issued in dollars.
Trump’s move was not discreet. According to Axios, in the Oval Office with Warsh he said: “Don’t look at me, don’t look at anyone, just make the right decision.” On Axios’s reading of sources close to the White House, the wording was carefully chosen so the president would publicly distance himself from accusations of direct interference, while the political message stayed clear: Warsh has the president’s backing, but is expected to show resolve in rate cuts.
The economy Warsh inherits
The range of economic indicators Warsh will find on his desk at the Marriner S. Eccles Building leaves little room for the luxury of accommodative loosening. Inflation in April, according to the Bureau of Labor Statistics, was above the two percent target. The energy shock from the three-month conflict with Iran is still spilling into industrial margins, and the labour market is showing signs of cooling in manufacturing. The Washington Post, in an analysis published on May 11, reminded readers that Warsh “inherits a portfolio that even Paul Volcker in the late 1970s would have called uncomfortable,” an allusion to the well-known example of bold stabilisation policy during Volcker’s tenure.
Former Fed chair Jerome Powell will remain on the Board of Governors, NBC reports. With that, Warsh keeps on the Federal Open Market Committee an experienced colleague who has been running stability policy for eight years and who has more than once publicly denied the possibility of fast rate cuts under conditions of rising inflation. According to the Brookings Institution, in an assessment signed by Donald Kohn, former vice chair of the Fed, “Warsh will, at the first Committee meeting, have to show that the institution’s independence is not rhetorical but operational.”
Political pressure measured in posts
Warsh takes over the leading role at a bank that, over the past year, has been the subject of more than a hundred public posts by President Trump demanding rate cuts ranging from half a point to a full percentage point. After the announcement of an independent congressional session on monetary policy for June 18, two Democratic senators, Elizabeth Warren and Sherrod Brown, said they will submit written questions to Warsh on how he plans to respond to any future appeal from the White House. Republican senator from Pennsylvania Dave McCormick told CNBC he expects the new chair to “keep the main compass in the data, not in tweets.”
According to CNBC’s Washington report, the next regular session of the Federal Open Market Committee is scheduled for June 17 and 18. Based on signals from five Committee members, only two governors are currently publicly backing an immediate 25 basis-point cut, while the rest of the majority hold the position that a cut is possible only after two consecutive monthly reports showing a slowdown in inflation.
For Belgrade, the most important date will be June 19, the day after the Federal Reserve’s decision, when the National Bank of Serbia has its regular Executive Board session. If Washington signals a rate cut, Belgrade gains wider room to keep the reference rate or cautiously lower it without the risk of weakening the dinar.
