NEW YORK, May 13 (Reuters) - The U.S. Senate on Wednesday voted to confirm Kevin Warsh as the chair of the Federal Reserve, paving the way for the lawyer, financier and former central-bank governor to take the reins of the Fed.
Warsh, 56 years old, will take over with inflation rising and markets grappling with the likely course of central-bank policy while President Donald Trump demands lower interest rates. A surge in oil prices since the start of the Iran war has swung investor expectations toward
a possible rate increase by year-end. The Fed's current target range for short-term borrowing costs is 3.50%-3.75%.
The Senate on Tuesday confirmed Warsh to a 14-year term as Federal Reserve governor and set the path for the vote to approve Warsh for a concurrent four-year term as Fed chair. His swearing-in to both positions awaits final White House signatures on paperwork sent by the Senate. Jerome Powell's term as chair ends on Friday.
Warsh says he plans "regime change" at the Fed, including tightening its coordination with the Treasury Department and the Trump administration on non-monetary policies and setting it on course for a smaller balance sheet, which he argues should allow for a lower policy rate.
COMMENTS:
RYAN SWIFT, CHIEF U.S. BOND STRATEGIST, BCA RESEARCH, MONTREAL:
“There is a big risk right now in terms of inflation expectations. If you look at something like a 10-year TIPS breakeven inflation rate, it's still reasonably well-anchored and consistent with inflation returning to target over time. But it has been rising recently, and it's certainly near the top end of that range since 2023. And you can see there's definitely a risk of it breaking out. And so I do think if Kevin Warsh, if the first things we hear from him are these dovish arguments about how the Fed can cut interest rates, I think that's going to be a big problem for the bond market.
“That would really risk those inflation expectations breaking out and sort of losing control of the long end of the yield curve and that would be a big problem. In my base case, I don't think he's going to do that. But certainly, it's a huge risk right now. He definitely has to shift his tone, otherwise we're going to have problems in the bond market here.
“Now that he is confirmed he has the job. I'd be pretty surprised if he starts arguing in favor of rate cuts anytime soon. I'd be pretty shocked if he does that, because I would say that's it’s really hard to build an economic case for that argument.”
PHIL BLANCATO, CHIEF MARKET STRATEGIST, OSAIC, NEW YORK:
“Markets are likely viewing Kevin Warsh’s confirmation as signaling a more inflation-focused Fed, given his long-standing criticism that policymakers stayed too loose for too long after the pandemic.
“Investors could also interpret his leadership as favoring less market intervention and a smaller Fed balance sheet, potentially leading to a more market-driven rate environment over time.
“At the same time, Powell's continued presence on the board may help calm fears and avoid abrupt policy shifts, creating a transition that looks more like evolution than a complete regime change.
“Ultimately, Warsh’s confirmation suggests that the Fed could become more inflation-conscious and less interventionist over time. The bigger market question is whether he governs independently or aligns more closely with White House pressure for lower rates, especially as Trump has publicly pushed for cuts.”
CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG GROUP, LONDON:
"It's going to be entertaining to say the least If Warsh has to end up raising rates at some point this year. I think the expectation is still that oil's rise remains capped and that we get some kind of Iran deal that gets dressed up in the right way. But it looks distant at the moment because they're not even talking about talking, but certainly the inflation data is putting everyone on notice that we are going to deal with a return of inflationary pressures to at least some extent.
"And while the Fed isn't too bothered about missing its inflation target because it's never got near for quite some time and it's more focused on employment, it will probably have to sound more hawkish. I don't think they'll be rushing to raise rates. Even the more hawkish members of the committee don't really want to upset the apple cart too much. But undoubtedly, if we get a few more months of this, then the story begins to change quite significantly."
JIM BAIRD, CHIEF INVESTMENT OFFICER, PLANTE MORAN FINANCIAL ADVISORS, SOUTHFIELD, MICHIGAN:
"As incoming chairman Warsh rolls up his sleeves to get to work, he has some challenges ahead of him. He's not coming into a placid environment. The Fed has challenges in terms of the balance of risks between inflation and employment and what that means for rate policy. The challenge around the inflation picture is that there are a number of factors that weigh into the inflation outlook, some of which can't be ideally addressed simply by raising rates. Raising rates isn't going to lower global oil prices. You've got energy costs. You've got tariffs and the impact of a relatively tight labor market."
"A lot has been made of what he's said in the past. We'll have to wait and see what tone he takes as he steps into the new role. He's not likely to be able to come into the Fed and change course radically even if he wanted to. There's an existing committee that's relatively independent."
PAUL NOLTE, SENIOR WEALTH ADVISOR AND MARKET STRATEGIST, MURPHY & SYLVEST WEALTH MANAGEMENT, ELMHURST, ILLINOIS:
"The confirmation and the confirmation hearings are always interesting theater. I'm going to be a lot more interested to see what he has to say once he goes through the first meeting in June and has a press conference. At that point, I think that's when we'll get an idea of what his goals and objectives truly are as opposed to talking to Congress.
"I think the markets are still a little unsure. He has been hawkish. He has talked about reducing the size of the balance sheet. He has talked about stopping QE and some of those types of things, which means that interest rates could stay higher for longer.
"But I think people are looking at his nomination as meaning that rates are going to come down because he's a Trump appointee. I don't know if that is going to be the case. I truly believe he is going to be, as many Fed governors, following the data."
(Reporting by Nolan D. McCaskill, Ann Saphir, Sinead Carew, Lewis Krauskopf, Karen Brettell, Laura Matthews, Utkarsh Hathi; editing by Colin Barr)
