Kevin Warsh Takes Over as New Fed Chair... First Tests Are Trump Pressure and Inflation

[Financial News, New York = Lee Byung-chul, correspondent]  With Kevin Warsh formally confirmed as the next chair of the Federal Reserve System (Fed), U.S. monetary policy has reached a major turning point. However, market expectations remain that even under the Warsh era, an immediate rate cut will be difficult. Instead, analysts say Warsh faces one of the toughest tests yet, caught between surging inflation after the war with Iran and renewed debate over the Fed's independence.
The United States Senate passed Warsh's nomination as Fed chair by a vote of 54 to 45 on the 13th local time. Warsh will succeed Jerome Powell, whose term ends on the 15th, and take over as the next Fed chair.
Donald Trump has repeatedly criticized Powell in public, saying the Fed has not cut rates aggressively enough. The launch of the Warsh era is being seen as the beginning of the 'new Fed' Trump has long wanted.
Still, Powell's decision to remain on the Fed's Board of Governors after stepping down as chair is seen as a burden for the Warsh era.
Last month, Powell said, "Political attacks on the Fed are damaging the institution itself," and announced that he would continue serving his term as a governor, which runs through January 2028. The remarks were widely interpreted as a message that he would defend the Fed's independence despite pressure from the Trump administration.
Some also say there is a possibility of a subtle tension inside the Fed between the 'Powell era' and the 'Warsh era.'
Warsh has already signaled that he wants to overhaul the Fed's large holdings of government bonds and Mortgage-Backed Securities (MBS), as well as its policy communication style and even the way it interprets economic data. Some have gone so far as to describe this as a "regime change" at the Fed.
But most analysts say Warsh is unlikely to move quickly to cut rates right after taking office.
That is because international oil prices and energy costs have surged after the war between the United States and Iran, pushing U.S. inflation higher again. The latest Consumer Price Index (CPI) and Producer Price Index (PPI) reports both came in above market expectations, fueling concerns that inflation is reaccelerating.
Markets are now largely giving up hopes for rate cuts this year. Some are even raising the possibility of rate hikes next year.
Inside the Fed, voices are reportedly growing louder that the possibility of a rate hike should not be ruled out entirely. No Fed official has publicly called for a hike yet, but there is a growing view that the market should at least be told that "the possibility of a hike remains open."
Warsh's first major test will come next month. The next Federal Open Market Committee (FOMC) meeting is scheduled for June 16-17. Markets believe the message Warsh delivers at his first meeting could shape not only the future direction of U.S. interest rates, but also the course of the debate over the Fed's independence.
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pride@fnnews.com Lee Byung-chul, correspondent Reporter