Kevin M. Warsh has been nominated by President Donald Trump to be the next chairman of the Federal Reserve. This nomination will lead to a heated confirmation process and rekindle the debate about the independence of the Federal Reserve.
Warsh is a former Fed Governor who held the position from 2006 until 2011. He was able to beat out several other high-profile candidates, such as White House Economic Advisor Kevin A. Hassett, and current Fed Governor Christopher J. Waller.
Rick Rieder was a BlackRock senior executive and also one of the finalists.
This nomination is at a moment when the Fed faces criticism for its unwillingness to reduce interest rates aggressively. Questions are raised about the direction of the Fed under the leadership of a Trump nominee.
Prospects for confirmation are under review
Warsh’s Senate nomination is in doubt despite the nomination.
Analysts have warned that confirmation could take a long time and be politically charged.
Kathleen Brooks of XTB Research, the research director, says Warsh will not have an easy time in Congress.
She cited two important dynamics, namely his recent change to a more dovish position, which appealed perhaps to the White House. And the wider controversy involving accusations that the Administration has tried to undermine the Fed’s autonomy.
Politics divisions appeared almost instantly after the announcement. Both parties’ lawmakers signaled that the confirmation could turn into a proxy war over the relationship between Fed and White House.
Senate math and partisan tensions
Republican senator Thom Tillis from North Carolina said that he will oppose Warsh’s nomination until the federal investigation into current Fed chairman Jerome Powell has been resolved.
Tillis, who is a senator and member of the Senate Banking Committee argues that it’s essential to protect the Fed against political pressure or intimidation.
It is necessary to have the retiring North Carolina legislator’s support in order for Warsh’s nominee to be approved by the Senate Banking Committee. This committee oversees and reviews the Fed’s nominees.
Republicans have a 13-11 narrow majority in the Senate Banking Committee. Warsh could be blocked if Tillis and all Democrats vote against him.
John Thune, the Majority Leader, responded on Thursday that the Senate would not be able to confirm Tillis as Fed Chair without Tillis’s backing.
Tillis appears to have limited his objections to Powell’s investigation. This suggests that, if Justice Department should step away from its probe, Warsh could be confirmed quickly.
On Bloomberg TV, he said that despite his belief Warsh will “more or less do the bidding” of the Administration (which is critical), he does not think Warsh would be able to fulfill this role.
Other Republicans were more supportive.
In a press release, Senate Banking Chairman Tim Scott (R – S.C.), said that Warsh has “deep knowledge of the markets and monetary policies that will be crucial in this role.”
He promised to “lead a thoughtful, timely confirmation that examines carefully his vision of focusing the Federal Reserve’s core mission.”
The Fed and Warsh: What the nomination of Warsh means
The impact of Warsh’s appointment on the Fed autonomy is a matter of debate among economists and investors.
Rogier Qaedvlieg, senior US economist at ABN Amro, said that Kevin Warsh seemed to be a fairly benign choice when it came to independence of the Fed.
He isn’t clearly part of Trump’s camp, but despite his different views on monetary policies compared with the FOMC’s consensus over the last few years, we do not see this nomination in a way that undermines the Fed’s independent.
Analysts point out also that the Fed chairman’s power is limited, since interest rate decisions must be made by an eleven-member committee.
The chair has a crucial role to play in shaping the debate, leading communication, and creating consensus. This makes the nomination politically and economically important.
The post “Why confirmation of Kevin Warsh’s Fed Chair nomination could face obstacles” may be updated as new information becomes available.
