Kevin Warsh attended the White House this Friday to be sworn in as the head of the Federal Reserve (Fed) of the United States, in an event presided over by Donald Trump, in which the US president insisted that his work be "totally independent".
"I want Kevin to be totally independent. I want him to be independent and just do a great job. Don't look at me. Don't look at anyone. Just do your thing and do a great job," the White House tenant maintained at the swearing-in ceremony.
Despite this call for autonomy, Trump stressed that, although Warsh intends to contain inflation, he does not seek to "curb greatness" as, according to the president, some of the previous heads of the so-called dollar guardian would have tried.
Warsh reiterated his commitment to the central bank's dual mandate, namely, preserving price stability and promoting full employment. In this regard, the new Fed chairman emphasized that "when we pursue these goals with wisdom, clarity, independence, and determination, inflation can be lower and growth stronger."
"While I am aware of the challenges we face, believe me, Mr. President, these years can bring unprecedented prosperity that will raise the standard of living for Americans from all walks of life, and the Federal Reserve has a lot to do with it," Kevin Warsh maintained.
The new head of the central bank will face his first meeting at the helm of the issuing institution on June 17, the date on which the first decision on interest rates will be known in the period that now opens under his leadership.
An economic scenario marked by the Iran war
Warsh's appointment comes in a particularly delicate context for the US economy, subjected to pressure derived from the Iran war, which has now been ongoing for nearly three months. Inflation has become the main focus of concern for experts, amid fears that a longer conflict in the Middle East could cause a persistent rise in prices.
The latest inflation record in the world's largest economy stood at 3.8%, the highest level in almost three years, compared to 3.3% in March and 2.4% recorded in February. The upward trend in prices is largely explained by tensions in the oil market following the closure of the Strait of Hormuz, which has reduced the global flow of crude oil.
In contrast, the labor market, the other key reference for the Fed's dual mandate, has behaved stably in recent months, with an unemployment rate slightly above 4%. In April, the US economy created 115,000 jobs and unemployment remained at 4.3%, practically unchanged since the beginning of the year.
Against this backdrop, Warsh will have to decide the direction of interest rates. His arrival in office is conditioned by his alignment with the positions of the White House president, who is calling for cuts in the price of money to give an additional boost to economic activity, an issue that was one of the main reasons for clashes with the previous president, Jerome Powell.
However, François Rimeu, senior strategist at Crédit Mutuel Asset Management, believes that "current US data support the need to raise interest rates in the short term" as a consequence of inflation expectations and employment strength.
"The labor market in particular, considered by the Fed as the main source of risk for the past two years, is, in general terms, balanced and close to full employment," the analyst highlighted.
For now, even Donald Trump himself seems to have accepted that a rate cut before the Iran war ends is difficult to justify. "You can't analyze the numbers until the war is over," the president acknowledged in an interview published by 'Fortune' magazine.
"Naturally, much will depend on the evolution of the conflict with Iran and commodity prices. But, without significant improvement in the coming months, Warsh's task seems especially difficult," the Crédit Mutuel analyst indicated.
A Federal Reserve divided on the future of rates
The orientation of interest rate policy is decided by a vote in the Federal Open Market Committee (FOMC) of the Fed, made up of 12 members. Therefore, although the role of the president is influential, it is not decisive on its own in determining whether money becomes cheaper or more expensive.
In the last meeting of the body, the majority of the governors opted to keep the benchmark rate unchanged, with the only disagreement from Stephen Miran, who advocated for a cut in rates, but who has had to leave his post to facilitate the arrival of Warsh.
In addition, three governors —Beth Hammack, Neel Kashkari, and Lorie Logan— voted against the language used by the Fed in its statement, considering that it suggested a possible cut in rates in future monetary policy decisions.
To the internal complexity is added the permanence of Jerome Powell as governor, alleging the need to shield himself from Executive pressures, and the maintenance of Lisa Cook —whom Trump tried to dismiss without success— on the Committee, which configures a delicate balance in the highest decision-making body of the Fed.
Christopher Waller and Michelle Bowman, governors who on other occasions have shown their preference for a less restrictive monetary policy and both nominated by Trump, could support Warsh in his intention to lower rates. However, Waller himself stressed this Friday that he "would not hesitate to support an increase" in the price of money if inflationary pressures consolidate.