Trump and Warsh's fates are now tied, for better or worse

Former US Federal Reserve Chair Jerome Powell was a handy foil for President Donald Trump, a target of blame for everything from high mortgage interest rates to the pace of economic growth.

But with new ​Chair Kevin Warsh now installed as the country’s central bank chief – completing Trump’s imprimatur across the top echelon of US economic policymaking posts – the dynamic shifts. Where Trump previously could claim that Powell was ‌foisted on him in his first administration by advisers like then-Treasury Secretary Steven Mnuchin, Warsh is Trump’s pick, and the president owns the results.

As if to emphasize the stakes, Trump hosted Warsh at a White House swearing-in ceremony on Friday that included cabinet secretaries, Supreme Court justices and top White House advisers in a pep rally atmosphere, saying in extended remarks that he wanted Warsh to “do your own thing and do a great job.

“Kevin understands that when the economy is booming that is a good thing…we want it to boom…We don’t want to see it stifled,” Trump said.

HIGH STAKES FOR MIDTERMS

After ​campaigning and winning a second term on promises of lowering prices and addressing larger “affordability” issues for U.S. households, Trump’s approval rating on the economy has slipped dramatically.

A reading of consumer sentiment posted roughly 90 minutes before Warsh’s swearing-in ​showed a broadly glum mood across America. That included confidence in the economy among independents – a key voting bloc in fast-approaching midterm congressional elections – and even Republicans tumbling to the lowest ⁠level of Trump’s second term.

The interest rate on 30-year home mortgages has risen back above 6.5%, a nine-month high and a continuing weight on an anemic housing market. Prices in general have continued rising under Trump, despite campaign pledges that they would fall from “day ​one” of his presidency: Since March 2025, the inflation gauge the Fed uses to set its 2% target has accelerated from 2.3% annually to 3.5%.

A gallon of gas, on average, cost $4.55 as of Friday, compared with less than $3 before Trump launched attacks ​on Iran in late February.

Just how Warsh’s performance as Fed leader in his first months might shape the prospects of Trump’s Republican Party in the midterms is unclear – and fraught with potential pitfalls.

High inflation is never kind to incumbent parties facing voters anxious about their wallets, but battling it involves tough medicine usually in the form of interest rate hikes that are also rarely popular – and certainly would not be welcomed by Trump.

Moreover, the Fed remains a diffuse body where the new chair will have to build his authority over time – all while the world looks ​for evidence of Trump’s influence.

“Powell was a really great scapegoat for Trump for issues that had nothing to do with Powell,” said Richard Stern, who studies economic policy at the conservative Advancing American Freedom think tank. Now “it’s going to be Trump’s economy…The ​big thing everybody was concerned with, the price increases, the affordability problem, all of that isn’t going to go away for years, many years, probably…And that’s independent of anything Trump is going to do or could do, and it’s independent of anything Warsh is going to ‌do.”

Warsh, 56, a ⁠lawyer and financier who served as a Fed governor from 2006 to 2011, has spent the time since then burnishing his chances to return as chair. His professional mentors have included figures like renowned monetarist economist Milton Friedman and former Secretary of State George Shultz, while his work with Wall Street giant Stanley Druckenmiller made him rich even beyond his wife’s stake in the Estee Lauder cosmetics fortune.

But it was his social and political ties to Trump that sealed the deal, with the president regretting that he had passed over Warsh for Powell in 2017.

HERDING AN UNWIELDY SYSTEM

Powell, because of Trump’s efforts to undermine the Fed’s standing to set monetary policy free of his influence, has chosen to stay on as a Fed governor, another unusual aspect ​of Warsh’s opening months as head of the world’s most powerful ​central bank, the institution other major central banks turn ⁠to for dollars in a pinch.

Even though some Fed chairs have exercised decisive influence, including past leaders like Paul Volcker and Alan Greenspan, the U.S. central bank is unwieldy by design, with a seven-member Board of Governors based in Washington and 12 presidents of regional Fed banks all participating in policy debates.

In recent years decision making has drifted towards more consensus-building by the ​chair. Warsh has said he favors a different, no-holds-barred debate approach, with more dissent, and a willingness to potentially surprise financial markets with policy decisions free of the forward ​guidance commonly used in recent years ⁠to prepare the public.

Whether global investors are ready for that approach remains an open question, but if recent Fed meetings are any indication his colleagues seem primed to deliver the “family fight” Warsh said during his confirmation hearing he relishes.

The April Fed meeting saw the most dissents in more than 30 years, and minutes of the meeting showed a majority of Warsh’s new colleagues think interest rates may need to rise – the opposite of what Trump has until recently said he expects and what Warsh until recently had been laying out the ⁠case to deliver.

That ​divided group of officials includes PhD economists with different technical knowledge than Warsh, high-level investment professionals with at least comparable experience in markets, and their ​former leader Powell. Among the six other governors, three were appointed by former President Joe Biden, including one, Lisa Cook, who Trump is trying to fire.

Yet as they debate the next policy moves, investors seem to have made up their mind that interest rates will need to rise in the face of stiffening ​inflation. For the long-dated bonds that determine what consumers pay to borrow money, yields are already rising.