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At his confirmation hearing, Warsh said one of the “essential elements” of new Fed policy will be to “get access to better data and to dig deeper into the productivity possibilities that can come out of this new investment wave.”
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Warsh also the central bank needs a new framework for evaluating inflation and said he wants to “slowly and deliberatively” reduce the Fed’s balance sheet, which has grown from less than US$1 trillion in mid-2008 to US$6.7 trillion as of early May.
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Reforming the century-old institution won’t be easy. The Fed’s open market committee that sets monetary policy isn’t a “one-man band” but a board of 12 voting members that makes decisions collectively, said Timothy Lane, former deputy governor of the Bank of Canada and senior fellow at the Centre for International Governance Innovation.
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“The chair has a lot of influence automatically just by being chair, but that’s not enough by itself,” he said. “There’s a need to win over other people to his way of seeing things, and that’s something that could take a little bit of time.”
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Where will Warsh go on rates?
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Trump has repeatedly called for outgoing Fed chair Jerome Powell to keep interest rates low. When asked by a CNBC reporter in April if he would be “disappointed” if Warsh didn’t cut rates right away, Trump agreed that he would be.
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Facing questioning from senators about pressures from Trump and the Fed’s independence, Warsh said he would be an “independent actor” if confirmed and said the president never asked him to “predetermine, commit, fix, decide on any interest rate decision in any of our discussions, nor would I ever agree to do so.”
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The Fed’s next interest rate announcement is on June 17, and traders are pricing in a 98 per cent chance that the Fed will hold its target rate at 3.5 per cent to 3.75 per cent, according to the CME FedWatch tool.
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“Almost any way they measure interest rate probabilities, there’s a very low chance of a cut anytime this year priced into the market at this point,” said Douglas Porter, chief economist at Bank of Montreal. “In fact, when you get into next year, the market is starting to price up rate hikes in 2027.”
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Warsh’s first press conference after the June rate announcement will provide some “flavour” as to his intentions, said Paul Beaudry, former deputy governor of the Bank of Canada and professor at the Vancouver School of Economics at the University of British Columbia.
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“His first speech after the decision will be quite revealing as to how he’s interpreting things, how he views things and what kind of messages he puts out,” said Beaudry.
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What are Warsh’s connections to Mark Carney?
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Warsh isn’t a stranger to Mark Carney. The two are professional acquaintances, as Warsh’s time at the Fed overlapped with Carney’s time as the governor of the Bank of Canada from 2008-2013.
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When Carney was governor of the Bank of England in 2014, it hired Warsh to review its communications around interest rate decisions, with a view to improving transparency.
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After Trump announced Warsh’s nomination in January, Carney said in a social media post Warsh is a “fantastic choice to lead the world’s most important central bank at this crucial time.”
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Warsh has also worked with Bank of Canada governor Tiff Macklem, who took up the post in 2020 and was previously the central bank’s senior deputy governor from 2010-2014 and deputy governor from 2004-2007.
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A Bank of Canada spokesperson said Macklem was unavailable for comment. When asked about Warsh’s nomination during a fireside chat at the Empire Club of Canada in Toronto on Feb. 5, Macklem said he welcomed it and noted that the two “worked closely” with then-chair Ben Bernanke during Warsh’s first stint at the Fed.
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