senate voted 49-44 yesterday to advance kevin warsh. final board confirmation vote is today. separate chair vote later this week. jerome powell last day as chair is friday may 15.
the weird part: powell is not leaving the FOMC. he is staying as a governor. so the old chair and the new chair will be sitting at the same table making rate decisions together. that has never happened before either.
warsh wants to shrink the fed balance sheet and stop using forward guidance as a policy tool. basically the opposite approach from the last decade. he told the senate the fed needs to stay in its lane and stop doing fiscal policy.
all of this is landing the same week CPI came in at 3.8%, above forecast, highest since 2023. no rate cuts expected this year. bank of america says maybe 2027.
the fed powell built is being replaced by something fundamentally different and the transition is happening during an inflation spike caused by a war.
new fed chair getting confirmed today on a party line vote. first time that has ever happened. he takes over friday, inflation just hit 3.8%, and the old chair is staying in the room as a governor
byu/Mother-Grapefruit-45 ineconomy
Posted by Mother-Grapefruit-45
3 Comments
If the Fed shouldn’t be in charge of fiscal policy, what is the other option? What is the point of the Fed if not that? This is half rhetorical (I’m not American, so if there’s some inner intricacy I’m not seeing here, I would appreciate the education).
The Fed should “stay in its lane” by doing literally everything Trump wants is what I think he means
Powell staying as governor creates an institutional ambiguity that markets hate. You now have the architect of the last decade’s forward guidance framework sitting at the same table as the person who just campaigned on eliminating forward guidance and every rate decision will be scrutinized for internal fracture lines in a way that undermines the unified voice the Fed depends on for credibility. Warsh has no incentive to cut early and validate the political narrative that his appointment was about pressuring the Fed, which means the higher for longer reality just got structurally extended regardless of what the economy does in the next six months.