The US Senate has confirmed Kevin Warsh as Chairman of the Board of Governors of the Federal Reserve System (the Fed) – the US central bank, which has been widely regarded as the world’s most influential central bank for nearly a century.

He is due to take up the post on May 15. We can expect the Fed to maintain its measured policy and resist the extravagant whims of US President Donald Trump.

Warsh worked at the Fed from 2006 to 2011. In other words, he was there during the subprime mortgage crisis of 2007–2008 and the global financial crisis of 2008–2009 that it triggered. At that time, the Fed, under the chairmanship of Ben Bernanke, acted with the utmost professionalism and responsibility to overcome both crises. Moreover, the Fed directly assisted European banks, saving many of them from a loss of liquidity and potential bankruptcy by providing hundreds of billions of dollars in long-term, low-cost loans. The Federal Open Market Committee, of which Warsh was a member, successfully resolved the most dangerous financial and economic crisis of the 21st century.

Warsh also has experience in the business sector – he served as an executive director in the mergers and acquisitions department of the investment bank Morgan Stanley. Warsh is married to Jane Lauder – the daughter of billionaire Ronald Lauder, who is a friend of US President Trump.

The main intrigue lies in the fact that, as Chair of the Fed, Warsh will have to face two problems requiring opposing courses of action: inflation, which requires a high Fed rate to combat, and President Trump’s persistent demands to lower the key rate to stimulate economic growth.

Based on Warsh’s voting record during his time at the Fed between 2006 and 2011 and his public rhetoric on monetary policy, one should not expect the new Fed chair to unquestioningly follow Trump’s wishes. It can be assumed that Warsh’s approach will not differ greatly from the modus operandi of his predecessor, Jerome Powell – a focus on containing inflation and reducing inflationary risks, with an emphasis on very cautious and gradual cuts to the Fed rate, and a readiness to respond swiftly with rate hikes to rising inflationary risks. Although Warsh has recently adjusted his rhetoric slightly, this may be a tactical move to gain the support of Trump-aligned senators.

Inflation in the US has accelerated noticeably recently. In April, it reached its highest level since May 2023 (4.1%), standing at 3.8% against the Fed’s long-term target of 2%. The main factor is the rise in global energy prices due to the war in Iran. Moreover, additional conditions for sustained high inflation have been identified: according to data from the US Bureau of Labour Statistics published on 13 May, the producer price index rose significantly in April to 4.3% year-on-year, compared with 3.4% in March – again, primarily due to rising fuel costs resulting from the war in the Persian Gulf. Rising US producer prices are likely to feed through to consumer prices in the near future.

The Fed’s key interest rate has stood at 3.75% since last December. For the time being, inflation is significantly higher than the Fed’s long-term target. There are no signs of inflation easing; on the contrary, a further acceleration in price growth is possible. Therefore, a cut in the Fed rate is unlikely. At the same time, the US labour market is doing well – with an increase of 115,000 jobs according to April data. This is important given that the second part of the Fed’s mandate is to support employment. In other words, there is no need to cut rates on this front.

Consequently, the Fed has no reason to make the kind of rate move that Trump desires, as the jobs data is quite positive and fuel costs continue to drive up consumer prices; therefore, the prospect of a rate cut is objectively unlikely.

There is another possible argument in favour of the new Fed chair’s relatively hawkish stance: people’s economic behaviour is largely determined by their experiences during their formative years.

Ulrika Malmendir, Professor of Economics and Finance at the University of California, Berkeley, explained in a study published on the website of the US National Bureau of Economic Research where the ‘hawks’ – that is, supporters of the Fed’s tight monetary policy – and the ‘doves’, i.e. advocates of soft monetary policy.

Malmendier and her co-authors analysed 7,350 voting records from members of the Federal Open Market Committee regarding interest rates, based on the outcomes of 659 Committee meetings between 1951 and 2014, as well as data on each of the voting participants at the meetings. It turned out that Committee members who grew up during a period of high inflation and were more frequently exposed to rising prices tended to favour tighter measures (‘hawks’), prioritising the fight against inflation and voting to raise the key interest rate. Meanwhile, the ‘doves’ were those who had not experienced rising prices but had seen unemployment, and they advocated for a loosening of monetary policy in favour of economic growth and a reduction in unemployment; the issue of inflation was not a priority for the ‘doves’.

The new Fed Chair, Warsh, was born in 1970, meaning he came of age in the 1980s, at the start of which inflation was in double digits (12–13%), and he surely remembers well the problems that high inflation caused for the US economy and population.

The next Fed meeting, at which the interest rate will be discussed, will take place on 16–17 June. If the Iranian crisis does not end – and there is little prospect of that – the rate is unlikely to fall. On the contrary, we should not rule out a surprise for Trump in the form of ‘hawkish rhetoric’ – a promise to raise rates should inflationary risks persist or intensify. All the more so as the stock and commodity markets are ‘overheated’ and it would be desirable to ‘cool them down’ somewhat, so that the stock market bubble does not burst with a bang and cause panic. One of the tools for such ‘cooling’ could be a rate hike, or at least a promise to do so.

There is little time left before we see how Warsh will act. At the same time, it should be noted that the US president has virtually no legally sound grounds to dismiss the Fed chair.