This week, Kevin Warsh will chair his first interest rate-setting meeting as the new Federal Reserve chair. Over the next four years, his decisions at the helm of the world’s most important central bank will shape not only economic conditions, but also the future direction of the institution.
US President Donald Trump has repudiated decades of precedent with his attacks against former chair Jerome Powell for not cutting interest rates. In his confirmation hearing, Warsh was duly dogged by questions about his fealty to Trump. Now that he is chair, he has the chance to prove himself. He must choose long-term market stability over short-term political concerns.
In normal times, this week’s Fed decision would be uneventful. Recent weeks have seen strong job numbers and annual consumer price index inflation rise to 4.2 per cent in May — a three-year high. Warsh would be wise to vote with the majority of the board, which is widely expected to hold rather than cut rates, not only because it is the most rational interpretation of the data, but because it will signal his commitment to institutional independence. This week’s meeting and press conference will set the tone for what markets will expect from his tenure.