Challenges Await Trump’s Federal Reserve Nominee

Not officially named yet and already facing challenges: the candidate designated by Donald Trump must deal with a rebound in inflation in the United States and opposition from an influential Republican senator, at least until the lawsuits against the current president, Jerome Powell, are dropped.

Questioned last week on Fox News Business about the possibility of a rate cut this year, President Donald Trump replied, “Yes. As soon as Kevin is in office.”

When the White House tenant chose Kevin Warsh in January to succeed Jerome Powell as Chairman of the Federal Reserve, one can assume that Warsh has given assurances to successfully pursue a policy of lowering interest rates, despite his hawkish background at the central bank.

However, this seemingly flawless scenario may derail. Currently, the likelihood of the central bank maintaining its federal funds rate unchanged next week – during the final monetary policy committee led by Jerome Powell – is close to 100%, according to FedWatch by CME.

Return of Inflation

Firstly, the war initiated by the United States in Iran has boosted energy prices and consequently inflation in the United States. For months, it has been evident that the 12 monetary policy officials (FOMC) are not in favor of a rate cut, and during the last meeting in March, only the governor (provisionally) Stephan Miran, a close associate of Donald Trump, continued to advocate for a rate cut.

And the situation on the inflation front has deteriorated notably since the crisis in the Middle East. With an inflation rate of 3.3% in March, the highest in two years, the central bank’s target of 2% seems out of reach this year.