U.S. President Donald Trump jokes with new Chairman of the Federal Reserve Kevin Warsh during his swearing-in ceremony at the White House on May 22.Roberto Schmidt/Getty Images
When Donald Trump picked Kevin Warsh to be the next chair of the U.S. Federal Reserve in January, there was a respectable case for lower interest rates – something the President has demanded repeatedly since returning to the White House last year.
In the months since then, that case has evaporated in the face of high oil prices and sturdy U.S. job numbers. That puts Mr. Warsh in a tricky spot when he takes the podium on Wednesday for his first rate-decision as the head of the world’s most important financial institution.
Mr. Warsh, who previously served as a member of the Fed’s board of governors from 2006 to 2011, was long regarded as an inflation hawk. Over the past year, however, he recast himself as a dove in favour of lower interest rates as he looked to curry favour with Mr. Trump.
Opinion: We need to talk about Kevin, the new Trump man at the Fed
Now, he will have to balance these two tendencies, acknowledging the hawkish tilt in the data, and among his colleagues on the Federal Open Markets Committee (FOMC), without completely abandoning the rhetoric that got him the job.
Financial markets universally expect the Fed to keep the target range for the federal funds rate steady at 3.5 per cent to 3.75 per cent on Wednesday.
“I think he has to side with the committee and acknowledge that inflation at the moment is the most problematic part of the dual mandate,” Oscar Munoz, head of U.S. economics at TD Securities, said referring to the Fed’s twin goals of low inflation and maximum employment.
“I don’t think he’s going to completely downplay [inflationary pressures]. It would be a disservice for him if he wants to build rapport and credibility with the committee for the things that he actually wants to change down the road.”
With no one expecting a change to the benchmark rate, the question is whether the Fed drops the language contained in recent rate decisions that suggested a bias towards easing. Traders will also be combing through the quarterly Summary of Economic Projections, where FOMC members write down their expectations for future interest rates.
Calendar: What investors need to know for the week ahead
Financial markets expect the Fed to remain on hold through most of this year, before hiking by a quarter-point in late 2026 or early 2027, according to Bloomberg data.
Wednesday will also be Mr. Warsh’s first opportunity since starting the job in May to publicly lay out his vision for the Fed.
The former central banker was lauded on Wall Street as a safe choice when he was nominated by Mr. Trump in January. He has experience inside the institution, including during the 2008-2009 financial crisis, and is a more mainstream economic thinker than some of the other candidates who were on Mr. Trump’s shortlist.
Still, Mr. Warsh has been highly critical of the Fed, and has promised “regime change” at the central bank.
He has said he wants to change how the central bank communicates. That could mean fewer press conferences and speeches by Fed governors, as well as less use of “forward guidance” – the practice of trying to influence market interest rates by indicating where monetary policy might be heading.
Thomas Ryan, senior North America economist at Capital Economics, said he thinks the Fed will be less transparent than it was under the past three chairs – Jerome Powell, Janet Yellen and Ben Bernanke.
“I don’t think we’ll go back to the 1970s, when it’s a smoke-and-mirrors Fed, where there’s no communication. Probably just less communication than we’ve been used to,” Mr. Ryan said.
Mr. Warsh has also said he wants to shrink the size of the Fed’s balance sheet and change how the central bank interacts with the bond market.
Since the 2008-09 financial crisis, the Fed has resorted to quantitative easing – the practice of buying bonds in the market to try to influence long-term interest rates – on several occasions. These interventions have caused the size of the Fed’s balance sheet to balloon to some US$6.7-trillion worth of assets.
“The Fed has an interest rate tool and a balance sheet tool,” Mr. Warsh said during his Senate confirmation hearing in April.
“My view is the interest rate tool gets in the cracks. It’s fairer. The balance sheet tool disproportionately helps those with financial assets; the interest rate tool hits the entire economy. So we need a new framework, new tools.”
Mr. Warsh cannot make major changes to the Fed’s monetary policy framework by himself, and will have to win over other Fed officials to his ideas. There are seven Fed governors, including the chair, and 12 regional presidents.
Opinion: New Fed chair poised to accelerate banking deregulation
TD’s Mr. Munoz said some of the more hawkish-leaning Fed officials may come around to Mr. Warsh’s approach to balance sheet policy.
“But all of that’s going to take time,” Mr. Munoz said. “He’s been criticizing the Fed for quite some time, and the people sitting there, and the staff. So I think he has to build bridges.”
Ultimately, the biggest question as the Fed enters its Warsh-era is how the new chair will interact with Mr. Trump.
The President was a relentless critic of former chair Mr. Powell, calling him names and lambasting him for not cutting interest rates. After returning to the White House, Mr. Trump ramped up his efforts to influence monetary policy.
Trump listens to Federal Reserve Chairman Jerome Powell, who he had a rocky relationship with, during a visit to the Federal Reserve in Washington in July, 2025Julia Demaree Nikhinson/The Associated Press
He appointed a close ally, Stephen Miran, as an interim Fed governor, tried to sack Governor Lisa Cook, and launched a criminal investigation into Fed building renovations. These moves raised major concerns among economists about Fed independence, which is widely regarded as an essential ingredient for keeping inflation under control.
In his Senate confirmation hearing, Mr. Warsh said he would defend Fed independence, while shrugging off concerns about the President’s pressure campaign.
“Presidents tend to be for cutting rates. I think the difference is President Trump expresses it quite publicly without surrogates or subterfuge,” Mr. Warsh said. “But Fed independence is up to the Fed.”
At Mr. Warsh’s swearing-in ceremony in May, Mr. Trump said he’d give the new chair space.
“I really mean this, I want Kevin to be totally independent,” Mr. Trump said. “Don’t look at me, don’t look at anybody, just do your own thing and do a great job.”