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Kevin Warsh was confirmed as the next Federal Reserve chairman on Wednesday, even as surging inflation has begun to narrow the central bank’s room for maneuver.
The Senate voted 54-45 to elevate President Trump’s pick to Fed chairman. Sen. John Fetterman (D-Pa.) was the only Democrat to vote in favor. A day earlier, lawmakers approved Warsh to a 14-year term on the Fed’s Board of Governors in a 51-45 vote.
Warsh is expected to replace outgoing Chair Jerome Powell by the end of the week, inheriting an economy where inflation is heating up again while President Trump pushes for lower borrowing costs.
Powell’s term as chair expires Friday, though he is expected to remain on the Fed’s board as a governor. The arrangement is unusual and could create internal tensions as Warsh begins reshaping monetary policy amid signs inflation may accelerate because of the Iran war.
“The Fed has a predicament,” Derek Reisfield, co-founder and original chairman of MarketWatch, told The Post. “While there is a lot of pressure to lower rates, typically in a rising inflation environment, the Fed would be hesitant to lower rates. That might fuel inflation more.”
Fresh inflation data released this week showed consumer prices rose 3.8% in April from a year earlier, the highest annual reading since mid-2023 and a sharp acceleration from March’s 3.3% pace.
Core inflation climbed 2.8% year over year, while the Fed’s preferred core PCE gauge remains above 3%.
Skanda Amarnath, executive director of Employ America and a former Fed economist, said inflation has “outperformed quite considerably” for months, even after stripping out volatile gasoline prices, and that the outlook looks tougher.
“Even the more flattering inflation measures Warsh pointed to at his confirmation hearing are now turning the other way,” Amarnath told The Post.
Warsh has spent years warning that the Fed lost credibility after flooding the economy with easy money following the pandemic.
At his Senate hearing last month, Warsh criticized the central bank’s 2020 policy overhaul, arguing it fueled “the inflation surge … we’re still living with.” He also criticized Fed officials for telegraphing rate decisions too aggressively.
“We need central bankers who are humble, who are nimble, who are open-minded, who can react,” Warsh told lawmakers.
While President Trump has repeatedly pushed the Federal Reserve to slash interest rates faster, Warsh has also argued that artificial intelligence could unleash a productivity boom that eventually lowers inflation pressures and allows rates to fall over time.
Powell is staying on the board in part because the controversy surrounding the Fed’s over-budget headquarters renovation project has not been fully resolved.
The project triggered a Justice Department probe into whether Powell misled Congress about soaring renovation costs. Prosecutors ultimately dropped the criminal investigation, but Powell has said he wants to remain “until the matter is well and truly over” and that the Fed’s independence is protected from political pressure.
DOJ officials have said they may revisit the criminal case if the Fed’s Office of Inspector General finds evidence of misconduct.
Reisfield said one of the biggest drivers behind the recent inflation spike has been turmoil surrounding the Strait of Hormuz. Disruptions have driven up oil and energy prices while choking off key industrial inputs from the Persian Gulf.
“These are all basic supply inputs to a ton of things, like fertilizer, computer chips, etc.,” Reisfield said. “So everything that relies on those inputs, which is pretty much everything in our economy, is going to cost more.”
Reisfield said the key question for the Fed is whether policymakers view the latest inflation surge as temporary.
“If the Iran war is over soon, those prices will drop,” he said. “One question will be how quickly.”
Amarnath said Wall Street may still be underestimating the possibility that the Fed eventually raises rates again if inflation remains stubbornly high.
“The debate now is why or why not hike — not why or why not cut,” he said.
That scenario would set up a direct collision with Trump, who has repeatedly criticized Powell for refusing to slash rates aggressively enough.
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