Washington: When Janet Yellen became the first female chair of the US Federal Reserve in 2014, she took the oath in a brief, private session at the central bank’s building, watched by her husband. It was a similar story for her successor, Jerome Powell, four years later.
By contrast, Donald Trump’s pick to run the Fed, Kevin Warsh, was treated to an elaborate, star-studded and televised White House ceremony on Friday (US time), where he was introduced by the president and sworn in by long-serving conservative Supreme Court Justice Clarence Thomas.
The moment has been a long time coming – Trump has raged against former Fed boss Powell on a near-daily basis for more than a year, calling him a numbskull and a moron and implying he is corrupt. His fault was being “too late” and “too slow” to lower interest rates.
Trump insists he does not wish to control the new central bank chairman. But the optics of Friday’s ceremony – and some of the president’s own words – suggested otherwise.
“I really mean this, this is not said in any other way: I want Kevin to be totally independent,” Trump said. “Don’t look at me, don’t look at anybody – just do your own thing and do a great job.”
Moments later, though, he was compelled to add his two cents’ worth on Warsh’s job, and made it clear he still wanted interest rates to be lowered.
“Unlike some of his predecessors, Kevin understands that when the economy is booming, that’s a good thing,” Trump said. “We don’t have to go crazy, just let it boom … We want to stop inflation, but we don’t want to stop greatness. Economic growth doesn’t mean inflation. It can be just the opposite, actually. You don’t have to stop the world because you’re doing well.”
A booming economy would help pay off some of the national debt, Trump added. “We do have some debt we’d like to take care of, and the way you do that is through growth. We’re going to grow our way out of it so fast.”
But debt is not the only problem Warsh encounters as he takes the reins of a financial institution whose actions affect economies around the world, including Australia’s.
Inflation has surged to 3.8 per cent amid the war in Iran and closure of the Strait of Hormuz – up from 3.3 per cent in March – though Trump insists it is temporary.
For the first time since the war began, the average price of a gallon of petrol has eclipsed $US4 ($5.60) in every US state. In seven states, the average is above $US5, as motorists begin the Memorial Day long weekend.
Consumer sentiment, meanwhile, has plunged to another record low. Friday’s survey from the University of Michigan – one of the most watched indicators of consumer confidence – showed sentiment crashing to 44.8 points, down from 49.8 in April, which was already below the previous record low from 2022.
Survey director Joanne Hsu said 57 per cent of consumers spontaneously mentioned high prices were eroding their personal finances, up from 50 per cent the previous month.
“Lower-income consumers and those without college degrees posted particularly strong sentiment declines,” Hsu said. “These groups are more sensitive to increases in the cost of gas and other essentials.”
Warsh, a Harvard-educated lawyer who became an investment banker, has served on the Fed’s board before. He was appointed by George W. Bush for a five-year term at the age of 35, when he was known as being an inflation hawk who advocated tighter monetary policy.
Justin Wolfers, an Australian economics professor at the University of Michigan, says we now need to wait and see which version of Kevin Warsh we will get.
“If it’s Kevin Warsh the hawk from 2006 to 2011, the real concern is he’d keep rates too high for too long … he’d be America’s Phil Lowe,” he says, referring to a previous Reserve Bank of Australia chairman.
“The alternative concern is that this is Kevin Warsh the craven political hack who refused to say who won the 2020 election – in which case the concern is he does what Trump wants [cut interest rates], in which case the concern is runaway inflation.”
Trump was visibly pleased as he watched Warsh speak in the White House East Room: praising Justice Thomas, naming former Fed chair Alan Greenspan as his mentor and pledging to run a reform-oriented bank.
“He’s excited for the new era,” Wolfers says of Trump. But he notes that Trump appointed Jerome Powell, too, back in 2018. “We’ve seen this play before.”
Get a note directly from our foreign correspondents on what’s making headlines around the world. Sign up for our weekly What in the World newsletter.
Michael Koziol is the North America correspondent for The Age and Sydney Morning Herald. He is a former Sydney editor, Sun-Herald deputy editor and a federal political reporter in Canberra.Connect via X or email.