What’s happening?
The term of the outgoing chair of the Federal Reserve, Jerome Powell, will come to an end on May 15, 2026. This means that Trump gets the once-in-four-year power of nominating the next chair. On Jan. 30, he nominated Kevin Warsh.
What’s the Federal Reserve? And why does it matter?
The Federal Reserve System (Fed) consists of three branches- the Board of Governors, the twelve Reserve Banks and the Federal Open Market Committee. Together, the branches set national monetary policy aiming to improve financial stability, protect consumers and regulate financial institutions. The chair of the Board of Governors also (usually) serves as the chair for the FOMC giving this person lots of power.
Who’s Kevin Warsh?
Warsh previously served as a member on the board in 2006 as a regular member. He also was the special assistant of economic policy and later the executive secretary on the National Economic Council for President George W. Bush.
Though his resume makes him appear qualified for the job, his recent actions have some economists worried.
In an interview with CNBC Warsh criticized the current Fed saying their hesitancy to cut rates, I think, is actually … quite a mark against them,” Warsh told CNBC. “The specter of the miss they made on inflation, it has stuck with them. So one of the reasons why the president, I think, is right to be pushing the Fed publicly is we need regime change in the conduct of policy.”
Why Should I Care?
The Federal Reserve is designed to be a non-partisan organization, but Warsh’s support for the president’s economic policies threaten to politicize the Fed.
The Fed chair, in theory, only has one of the 12 votes that determines interest rates, but historically the chair has never been outvoted. Members tend to base their opinions on what the chair thinks, meaning that if the chair is acting on their own agenda, it is likely to become the agenda of the entire Fed.
That means his vote has the power to raise or lower interest rates, which if done carelessly can negatively affect the economy. Interest rates impact the economy by encouraging or discouraging certain behaviors. High interest rates might discourage people from taking out loans, for instance, while low interest rates encourage spending. These rates are usually changed carefully and gradually. However, if this power is politicized, rates can change to encourage consumers to perform in a way that is not actually best for the current economy.
The new fed chair can change your everyday economic life.
All of this? That’s why you should care.
To learn more:
https://www.pbs.org/newshour/economy/3-things-to-know-about-kevin-warsh-trumps-pick-for-fed-chair
https://www.federalreservehistory.org/people/kevin-m-warsh
https://www.federalreserve.gov/faqs/why-do-interest-rates-matter.htm
