RPT-BREAKINGVIEWS-Jerome Powell offers preview of Warsh's headaches

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Gabriel Rubin

WASHINGTON, March 18 (Reuters Breakingviews) - Jerome Powell has a message about the future: “nobody knows.” The truism has rung louder than usual of late, and the Federal Reserve chairman’s eight years in office have taught him to expect the worst of the unexpected. But his remarks following Wednesday’s Fed meeting were a reminder that Powell won’t be at the helm much longer, with his term as chairman set to expire in May and nominee Kevin Warsh awaiting Senate confirmation. Markets appropriately seemed to hear his comment as a warning: maneuvering through crises isn’t as easy as he has at times made it look.

The Iran war is the fourth major economic jolt of Powell’s tenure, following the 2020 Covid hit, the 2022 Russian invasion of Ukraine and associated pandemic-reopening supply shocks, and President Donald Trump’s unilateral trade war against the world beginning in April 2025. The consequences of the ongoing disturbance can’t yet be grasped, but oil prices above $100 per barrel have led derivatives markets to reprice their Fed rate cut projections to account for higher inflation. At the end of last week, traders saw a 47% chance of at least one cut by December, down from 74% before the Iran war began in late February, per the Atlanta Fed. The probability of a rate increase rose from below 10% to around a third.

Ominously, wholesale inflation started to pop even before the U.S.-Israeli bombing of Iran began. February data released Wednesday showed that producer prices, an upstream measurement of consumer prices, rose 3.4% over the prior year, and 0.7% over the prior month, led by higher goods inflation. Since the war began on February 28, oil prices have surged 40%, the effects of which will only start to be seen in reports next month.

Powell did more than lay out his successor’s challenges. He volunteered a piece of information — or lack thereof — that is crucial for the White House’s bid to remake the Fed: he has not yet decided whether to serve out his term as a governor, which doesn’t expire until 2028, well after his chairmanship expires.

He instead said any decision will be based on what he believes is in the best interests of the institution. Given the administration’s concerted campaign to influence Fed policy and gain power over its officials, close watchers took that as a sign that Powell is indeed likely to stay on, absent a major change. Still, whether on the board or at the beach, Powell’s message is clear: these problems will be Warsh’s to solve.

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CONTEXT NEWS

The U.S. Federal Reserve held rates steady at its meeting on March 18, with Chairman Jerome Powell voicing concerns about rising inflation expectations due to a spike in energy prices.

Powell is scheduled to chair just one more meeting prior to the expiration of his term as chairman, though he said he would stay on past May 15 if a successor has not yet been confirmed by the Senate. He said he had not yet decided whether to stay on the Fed board as a governor until 2028, when his 14-year term expires.

(Editing by Rob Cyran; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on RUBIN/gabriel.rubin@thomsonreuters.com))