Kevin Warsh is scheduled to be sworn in as the Chair of the Federal Reserve at 11 AM local time on the 22nd (23:00 Beijing time on the 22nd). According to previous reports, a White House official stated that U.S. President Trump will host an inauguration ceremony for Warsh at the White House. The last time a Federal Reserve Chair was inaugurated at the White House was in 1987, approximately 40 years ago, when then-President Reagan appointed Alan Greenspan. A White House official indicated that this White House ceremony differs significantly from the recent practice of holding inaugurations at the Federal Reserve headquarters without presidential attendance. This clearly demonstrates Trump's emphasis on the Federal Reserve's leadership amid ongoing debates about the central bank's independence.
To what extent will the Federal Reserve under Warsh's leadership remain independent from White House influence? Former Federal Reserve senior economist and professor at the Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, Hu Jie, stated in an interview that Warsh is unlikely to face more administrative interference than previous Fed chairs. "There is no need for excessive concern regarding the Federal Reserve's independence," he remarked.
He also noted that current negative signals suggest that if geopolitical and supply chain pressures persist, inflation faces a significant risk of a secondary rebound. Should this rebound trend become established, the Federal Reserve may not only be unable to cut interest rates this year, but markets may also need to seriously consider the possibility of rate hikes. However, for now, a wait-and-see approach prevails.
Can the Federal Reserve Maintain Its Independence? On January 30, the Trump administration announced the nomination of Kevin Warsh as the new Federal Reserve Chair. In early March, the White House submitted Warsh's nomination to the Senate for both a Federal Reserve Board seat and the next Chair position. On May 13, the U.S. Senate confirmed Warsh to succeed Jerome Powell as the next Federal Reserve Chair with a vote of 54 in favor and 45 opposed, for a four-year term.
Concerns have been raised regarding the choice of the inauguration venue. David Wilcox, Senior Fellow at the Peterson Institute for International Economics (PIIE) and Head of U.S. Economic Research at Bloomberg Economics, commented that given the Federal Reserve's current sensitive position, this decision is "unseemly." He stated, "There is widespread concern about whether Washington maintains sufficient distance from the White House. Holding the inauguration at the Federal Reserve headquarters might have provided a small but significant sense of relief." He added, "It is somewhat disconcerting that someone sensitive to symbolism did not make this choice."
During his confirmation hearings, Warsh's statements to some extent delineated boundaries from the Trump administration. However, external observers remain concerned that, considering his close ties to the Trump family, the relationship between the Federal Reserve and the White House may undergo new changes upon his assumption of office.
Hu Jie believes that the independence of the Federal Reserve Chair has always been a topic of high interest for the media and the industry. Since the "historic accord" between the Federal Reserve and the Treasury Department in 1951, the operational independence of the Federal Reserve has become a fundamental consensus, solidified through national laws and regulations. "Since then, both the role of the Federal Reserve Chair and the independent actions of the institution as a whole have been largely institutionally guaranteed. Within this framework, regardless of who serves as Federal Reserve Chair, there is over a 95% probability that their independence will not face significant issues," he explained.
Hu Jie further noted that the heightened attention to Warsh's independence upon taking office is primarily due to the numerous disputes between Trump and the Federal Reserve in the past. "As is well known, Trump, due to his distinct personal style, has been among the U.S. presidents more inclined to overtly interfere with the Federal Reserve's work. This is not surprising, as from the perspective of overall interest structures, power frameworks, and policy directions, the executive branch typically tends to pressure the Federal Reserve to cut interest rates quickly to create a loose monetary environment that stimulates economic growth and reduces unemployment, which is politically advantageous," Hu Jie said. However, the Federal Reserve, as a professional institution, considers matters with greater technical expertise.
"The core mission of the Federal Reserve is to control inflation, which sometimes inevitably creates short-term conflicts with promoting employment and economic growth, leading to friction. Over the past period, due to severe friction between the two sides, this evolved into a high-profile news event. Additionally, Warsh happens to be a nominee of Trump, raising market concerns about whether he might be unduly influenced by Trump to some extent," Hu Jie stated. "But based on comprehensive information and underlying logic, I believe he is no more likely to be troubled by administrative interference than other Federal Reserve Chairs in history."
When Will the Path to Rate Cuts Become Clear? In short, the Middle East conflict has interrupted the global disinflation trend that began in 2023. The United States is not immune.
Supply constraints, soaring prices, and rising transportation and insurance costs are transmitting through supply chains, increasing global production costs. Simply put, in the United States, while energy companies benefit from price increases, households and businesses face greater cost pressures.
Currently, better-than-expected Personal Consumption Expenditures (PCE) inflation, positive labor market data, and an increasingly hawkish tilt within the Federal Open Market Committee (FOMC) have prompted Goldman Sachs, in its latest report, to push back its forecast for the next two 25-basis-point normalization rate cuts to December 2026 and March 2027.
It is evident that current market expectations for overall rate cuts are far less optimistic than at the beginning of this year.
Hu Jie stated that regarding rate cut policy, the first aspect is Warsh's own policy approach and stylistic preferences. He explained that a notable feature of Warsh's policy paradigm is a preference for a policy mix of "balance sheet reduction and rate cuts," meaning implementing rate cuts alongside efforts to shrink the balance sheet.
The second aspect is the changing circumstances. "Regardless of an official's policy inclinations and stylistic characteristics, when policies are implemented, the Federal Reserve Chair and the FOMC must make decisions based on current real economic data. This means that the timing and magnitude of rate cuts or hikes depend entirely on the objective economic situation," Hu Jie said. "From the current perspective, it is highly likely that Warsh's first FOMC meeting after taking office will choose to maintain the status quo."
"This judgment is based on the fact that before the outbreak of the Middle East conflict, the U.S. disinflation trend was relatively clear. Although the ideal 2% target had not been reached, inflation was at a relatively mild level of around 3%, and the downward channel, though slow, appeared stable. In this context, the market generally expected the Federal Reserve to cut rates by roughly 50 basis points within the year, with optimists anticipating even larger cuts," Hu Jie said. Combined with Warsh's "balance sheet reduction plus rate cuts" policy paradigm, it seemed likely at the time that rate cuts would begin in the second half of the year. However, the Middle East conflict that erupted about three months ago and the deterioration of the Strait of Hormuz situation completely disrupted this established path.
"As energy and geopolitical premiums transmit upstream, oil and commodity prices rise, subsequently affecting almost all industries and end products. Consequently, the U.S. inflation situation has once again become less optimistic," he stated. Based on the latest U.S. macroeconomic data, signs of inflation rebound are emerging: the Consumer Price Index (CPI) year-on-year growth rate has rebounded from 3.0% to 3.8%, while the Producer Price Index (PPI) has climbed to 6%.
"Currently, the situation is not entirely clear. The next FOMC meeting is scheduled for June 16. I believe the Federal Reserve will still choose to keep interest rates unchanged at that time for a period of observation," he opined. "However, if after this window, subsequent economic data continue to be unfavorable for cooling and stabilizing inflation, I believe the Federal Reserve is highly likely to put restarting rate hikes back on the agenda. But at this stage, the policy stance remains one of watchful waiting."
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