By Nick Timiraos
At his Senate confirmation hearing last week, Kevin Warsh told lawmakers that the Federal Reserve needed a serious shaking up, with "messier meetings" and "a good family fight" at an institution that has cultivated discipline and consensus.
He may be getting all of that and more.
On Wednesday afternoon, the man he's set to replace as Fed chair, Jerome Powell, announced he wouldn't be leaving right away. Three of Powell's colleagues delivered a pointed warning that they are in no mood to cut rates anytime soon.
Every Fed chair for the past 75 years has left the central bank when his or her successor took over. Powell's announcement that he would remain on the Fed's board as a governor after handing the baton to Warsh next month broke with that precedent. It underscored how far the Trump administration's pressure campaign had pushed the Fed into uncharted territory.
Powell's decision followed a criminal probe of his oversight of building renovations. Trump had cheered that investigation but prosecutors halted it last week to advance Warsh's confirmation. Last year, Trump attempted to fire a Fed governor in a case that is now before the Supreme Court.
"My concern is really about the series of legal attacks on the Fed, which threaten our ability to conduct monetary policy without considering political factors," Powell said at his news conference. "I worry that these attacks are battering the institution."
Trump mocked the decision later Wednesday. Powell wants to stay, he said, "because he can't get a job anywhere else."
Treasury Secretary Scott Bessent said it was Powell -- not the administration -- who was violating established practice. "For someone who says he's an institutionalist," Bessent said, "this is a violation of all Federal Reserve norms."
Powell wasn't the only Fed official making a statement Wednesday.
Three regional Fed presidents broke publicly with Powell on the language explaining the decision. The dissent itself was striking: not over the rate action itself but rather because they opposed signaling that a rate cut remains more likely than a rate hike. Powell offered only a light defense at his news conference.
The three presidents -- Cleveland's Beth Hammack, Minneapolis's Neel Kashkari and Dallas's Lorie Logan -- were effectively serving notice, less to Powell on his way out than to Warsh on his way in: That with energy prices rising, underlying inflation stuck near 3% and tariffs still working through the system, this is a committee unable to deliver the cuts the White House expects.
A fourth official, governor Stephen Miran, dissented in the opposite direction, favoring a cut. Miran, a Trump appointee, is set to leave the board because Powell's decision to stay denies the administration the vacancy it had been counting on. Four dissents were the most at any meeting since 1992, before the Fed announced its rate decisions in real time.
The Fed's hawkish turn reflects a more complicated inflation picture than it faced months ago, before the Iran war. The closure of the Strait of Hormuz has pushed up energy prices and threatens to keep them elevated. Tariffs imposed last year are still feeding through to consumer goods.
The hawkish case is finding political backers from inside the president's own party, indicating that holding rates steady -- or even raising them -- might not leave Warsh isolated within his own coalition.
Sen. John Kennedy (R., La.) said Wednesday he wanted to see the Fed stay on top of inflation. "Inflation is very pernicious, and it's kind of like a tick," Kennedy said. "If you get a tick, the best way to handle it is to get that SOB off of you immediately. If it has a chance to dig in, it gets a lot harder."
Wednesday's events raise a question: Whether the era of the chair-driven Fed is waning. Alan Greenspan was the institution. Ben Bernanke, Janet Yellen and Powell democratized the role without weakening it, navigating crises through a framework in which the chair spoke and the committee followed.
"Kevin's going to have to go in there and work to get six votes plus his to get things done," said Sen. Thom Tillis (R., N.C.). "Hopefully he'll work on a consensus basis, where you may have one or two dissenters. That's how the Fed should work."
Warsh's nomination advanced earlier Wednesday through the Senate Banking Committee on a party-line vote, the first ever for a Fed chair. The central bank's next meeting is June 16-17.
"His first meeting is not going to be one in which he goes in there and dictates policy, or even dictates how they talk about policy," said Michael Feroli, chief U.S. economist at JPMorgan Chase.
The predictability of the chair's voice did more than hold an institution together or guide markets through individual decisions. It damped the volatility around what the Fed might do next, which in turn helped hold down interest rates. A Fed where that signal is harder to read risks somewhat higher borrowing costs for borrowers, businesses and the government itself.
Warsh built his case for the chairmanship around the argument that this exact framework needs to change. Last week he told lawmakers that the Fed's mishandling of inflation had contributed to the attacks on its independence. "Fed independence is up to the Fed," he said, arguing that the institution had to earn back the credibility that political pressure was now exploiting.
Powell offered a different read of the same dynamic. The pressure on the Fed, in his telling, wasn't a consequence of the institution's mistakes; it was a fight that had to be waged regardless.
"I am confident that the Fed will continue to make its decisions based on rigorous analysis and not on political considerations, but we've had to fight for it," Powell said. "I'd like to think we can get out of that era and go back to respecting what the law says and what custom has been, which is to let the Fed do our thing."
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