New Fed Chair takes seat: What to expect

Kevin Warsh became the 17th chair of the Federal Reserve after Senate confirmation this week.

Replacing Jerome Powell, who served for eight years and resisted President Donald Trump’s calls for lower interest rates, Warsh is reportedly more supportive of rate cuts.

What to expect from Warsh?
He is taking office amid heightened geopolitical tensions and when inflation is at 3.8%, well above the Fed’s 2% target.

Analysts note that convincing the 12-member Federal Open Market Committee (FOMC) about rate cuts would be difficult. Forecasts indicate little likelihood of rate reductions before the end of the year, mainly due to the energy shock.

Warsh also plans to shrink the Fed’s $6.7 trillion balance sheet drastically, cut the number of annual policy meetings, downsize the central bank’s workforce, host fewer press conferences, and coordinate more closely with the Treasury Department. His first meeting is scheduled for June 16-17.

And what about Powell
His tenure was full of ups and downs (rate-wise).

During his first year in the role in 2018, Powell raised interest rates four times, from 1.25%–1.50% to 2.25%–2.50%, which Trump vehemently opposed.

Powell and the Fed implemented aggressive measures to stave off a prolonged recession during the COVID-19 era. The Fed purchased large amounts of debt and conducted extensive bond-buying programs, and urged Congress for fiscal relief for Americans, including expanded unemployment benefits. His continuous efforts saw the unemployment rate fall below 4% by late 2021, after peaking at nearly 14.8% the previous year.

However, once the economy opened after pandemic lockdowns, the US saw the worst inflation in decades.

What’s next for Powell
The former Fed chair plans to retain his seat as governor.