By Bryan Mena, CNN
Washington (CNN) — Kevin Warsh was narrowly confirmed Wednesday by the Senate to serve as the 17th chair of the Federal Reserve, inheriting a central bank that has long been under political siege from President Donald Trump and an economy rattled by geopolitical tensions that are driving inflation higher.
Warsh will formally succeed Fed Chair Jerome Powell, whose eight-year tenure was marked by several economic crises and a heated clash with the White House to defend the US central bank’s political independence.
Warsh was confirmed in a 54-45 vote, mostly split along party lines, with only Democratic Sen. John Fetterman of Pennsylvania crossing the aisle to vote in favor of Warsh’s nomination. It was the most partisan vote for a Fed chair nominee in history, underscoring the unease among Democrats with Trump’s fight against the Fed, though Republicans broadly welcome Warsh’s leadership.
Warsh is widely viewed as more aligned with President Donald Trump, who has long demanded rate cuts, but he is set to take office as inflation pressures intensify due to the US-Israeli war with Iran. Inflation jumped to a three-year high in April, according to the latest Consumer Price Index, and now outpaces wage growth.
The energy shock is complicating hopes for a swift rate cut, with investors now expecting the Fed to keep its benchmark lending rate unchanged for the rest of the year — or even raise rates if inflation worsens. That prospect is likely to frustrate Trump, who may direct his ire at Warsh in the same way he has done with Powell. The president even joked earlier this year that he’d sue Warsh if he doesn’t cut rates.
Regardless, the Fed chair is just one vote on the Federal Open Market Committee that considers rate moves. While Warsh would control the agenda at every Fed meeting, he would not have unilateral authority over what the majority of the committee decides. And so far, there’s a faction of policymakers with voting power who have telegraphed serious concerns with inflation.
What to expect from Warsh
The Warsh era at the Fed is expected to usher in several changes within the institution.
The incoming Fed chief has proposed or hinted at reducing the size of the Fed’s $6.7 trillion balance sheet; coordinating more closely with the Treasury Department on the balance sheet; cutting back on the number of policy meetings each year from eight to as little as four; hosting fewer news conferences; shrinking the size of the Fed’s Washington-based workforce; and not providing frequent hints on the path of interest rates. According to JPMorgan analysts, all those changes would be within the remit of Warsh’s power as chair.
The most challenging policy change for Warsh could be on the balance sheet. For years, Warsh has stated repeatedly that the Fed must reduce its footprint in financial markets by shrinking the balance sheet to allow central bankers to primarily rely on their traditional tool — their key interest rate — to fight high inflation and high unemployment.
After the Great Financial Crisis and again during the pandemic, the Fed bought millions of dollars of assets like Treasury bonds to support the economy, a policy known as quantitative easing.
Warsh believes that such policies undermine the Fed’s independence, since they essentially amount to backstopping the government. He argues that the central bank should speed up rolling off its trillions in holdings, which includes mortgage-backed securitie