The American Senate is about to confirm on Wednesday the nomination of Donald Trump’s candidate, Kevin Warsh, to head the powerful United States central bank (Fed).
The presidential party holds the majority in the Senate, and the outcome of the vote, scheduled to start at 2:00 pm local time (6:00 pm GMT), leaves little doubt.
Mr. Warsh will then only need to take the oath before officially taking up his duties.
The upper chamber already validated on Tuesday, with 51 votes to 45, his entry to the board of governors of the Federal Reserve for fourteen years. His term as president will run for four years.
Donald Trump, who openly desires lower interest rates, had considered appointing him to lead the institution as early as 2018, during his first term in the White House. He eventually chose Jerome Powell, who was renewed under Democrat Joe Biden, whose presidency ends on Friday.
Donald Trump quickly regretted his choice and made it known by hurling insults and exerting various pressures on Mr. Powell.
Many observers say that Kevin Warsh will face the same fate if he does not lower interest rates.
To achieve that, he will need to convince the eleven officials who will vote on his monetary policy decisions.
The Fed is tasked with fighting inflation without damaging employment. Its primary tool is its interest rates, which guide borrowing costs. The Fed can raise them to curb price pressures or lower them to stimulate economic activity and prevent people from facing unemployment.
Currently, the unemployment rate remains low at 4.3%.
Most central bankers are therefore focused on the spike in fever due to the Middle East conflict and the sharp rise in gasoline prices.
The Fed targets 2% inflation, a target that has been missed for five years and is moving further away at a rapid pace. Consumer prices rose in April at a rate not seen in almost three years (+3.8% year-on-year).
– Powell stays in the Fed –
Kevin Warsh, 56, will chair his first monetary policy meeting on June 16 and 17.
He returns to an institution where he served as a simple governor from 2006 to 2011, to sit alongside officials whose decisions he has criticized.
The first among them is Powell, who spent a total of eight years at the helm of the Fed and decided to remain on the board of governors (he can do so until January 2028). The institution serves as a shield for him against Donald Trump’s disfavor.
There is also Governor Lisa Cook, whom the leader also tried to oust. The Supreme Court is expected to soon render its decision in this matter.
“I don’t think the independence of monetary policy is threatened when elected officials express their views on interest rates. The Fed’s independence depends on the Fed itself,” Kevin Warsh told senators during his hearing last month.
Governor during the 2008 financial crisis, he said he had seen the Fed and its members at their best. “But I also saw an institution tempted to play a bigger role in the economy and society,” he regretted, arguing that the Fed must “stay in its lane” – monetary policy – to remain credible.
He plans to reduce the volume of financial assets held by the institution – which has skyrocketed during crises – to lessen its impact on the markets.
He may also try to communicate differently – less.
Investors welcomed his nomination at the beginning of the year.
They remember that he was a “hawkish” central banker, concerned about inflation, and believe he will not advocate for unjustified rate cuts.
“Warsh might possibly vote for a rate cut,” economist Mark Zandi from Moody’s told AFP, “but he knows he won’t win out, as it may only be his vote, perhaps one more, and all the others will not want to move, or may even want to start raising rates given the inflation.”
Published on May 13 at 4:57 pm by AFP.
