Kevin Warsh officially assumes the hot seat

The Federal Reserve finally has a new chair.

Kevin Warsh took his oath at the White House today, the first time a US president has rolled out the red carpet for this occasion since Alan Greenspan in 1987. This is also President Trump’s first public appearance with Warsh since he nominated him a year earlier. And so far at least, everyone’s playing nice.

“I expect he will go down as one of the truly great chairmen of the Federal Reserve that we’ve ever had,” Trump declared during remarks in the East Room. His advice for Warsh? “Be independent and just do a great job. Don’t look at me, don’t look at anybody, just do your own thing.”

Warsh vowed to live up those lofty expectations, saying, “I will lead a reform-oriented Federal Reserve, learning from past successes and mistakes, both escaping static frameworks and models and upholding clear standards of integrity and performance.”

It was a rare moment filled with warm and fuzzy vibes we should all savor, since things are likely to get a whole lot less civilized from here.

Trump or the economy: Warsh’s tough call

The timing for Warsh to take the reins is rough. Trump handpicked Warsh with not-so-subtle expectations to slash rates. But the economy has other ideas, and Warsh’s fellow central bankers are warning that a rate cut could do more damage than good.

The biggest worry is inflation, which hit a three-year peak of 3.8% in April. Traders responded by dumping US bonds, pushing the 30-year Treasury yield to 5.197%—the highest since before the 2008 financial crisis.

High yields are a problem on a few fronts. It means the US government’s massive debt load gets heavier. It’s also bad for Wall Street, since investors tend to pile in when bonds are delivering strong, safe returns—leaving less capital for stocks, hurting share prices.

Meanwhile, Main Street America isn’t feeling so hot either, and soaring gas prices are the least of their problems. Mortgage rates recently hit their highest level in nine months, which means shopping for a home, car, or any big purchase couldn’t get much worse. Consumer sentiment is already at an all-time low; Americans feel worse now than they did during the Great Recession, 9/11, or the Covid pandemic.

All of this has prompted a rising tide of investors to anticipate that the Fed’s next move could be to raise rates rather than deliver the cut Trump has been gunning for. Although the odds of a quarter-point rate hike at the FOMC’s June meeting are under 4%, the odds that the Fed will raise rates go up as the year goes on, reaching more than 42% by December.

Whatever happens, it’ll be interesting to see if Warsh can manage to take Trump’s advice and “do his thing”—and how long it takes Trump to coin an insulting nickname for him.—JD