(The Washington Post, Andrew Ackerman, May 12, 2026)
Kevin Warsh is preparing to inherit a Federal Reserve under pressure from stubborn inflation that has exceeded the 2% target for over five years and now risks worsening due to rising energy costs linked to the war in Iran. The new Fed chair will have to manage a divided committee, with four dissents in the last rate meeting, and navigate between Trump’s demand for rapid cuts and the need to maintain institutional credibility without yielding to political pressures. The presence of Jerome Powell as a simple governor adds further complexity, providing a reference point for those skeptical of Warsh’s reformist ideas.
Warsh’s appointment comes at a time of great economic uncertainty, with high public debt that could push the Fed to prioritize containing government financing costs over controlling inflation. Warsh has harshly criticized the Fed’s mistakes during the pandemic and wants to drastically reduce the institution’s balance sheet, but he will have to face an economy where AI and future productivity expectations might require a more aggressive stance on rates to avoid overheating.
The main obstacle for Warsh will be balancing Trump’s agenda with real economic data: while the president pushes for rate cuts, the majority of the committee sees inflation as the greater risk. His ability to reform a bureaucratic and change-resistant institution will depend on his capacity to build internal consensus without losing authority in the markets, in a context where any mistake could amplify distrust towards the Fed’s independence.
Immediate Pressure on Inflation
“Inflation has run above the 2% target for more than five years and is now moving in the wrong direction, driven upward by fuel costs linked to the war in Iran.”
Internal Division in the Fed Committee
“At last month’s monetary policy meeting, four officials dissented from the statement, the largest disagreement since the 1990s. Three wanted to go beyond the majority, pushing to remove any suggestion that the Fed still leans toward rate cuts.”
Relationship with Trump
“Warsh will have to manage a president who makes no secret of what he expects from his Fed chair: lower rates, and quickly. The economic fundamentals and the majority of the policy committee he will inherit could make achieving this impossible.”
Criticism of the Fed’s Balance Sheet
“Warsh wants, over time, to drastically reduce the Fed’s $6.7 trillion balance sheet, which he sees as equivalent to disguised fiscal policy, financing public spending in ways that should be left to Congress and undermining the Fed’s theoretical political independence.”
Need for Credibility
“If the FOMC majority and anyone seriously involved in economics say there is no big risk of recession and the bigger problem is inflation, he will not stand in the way. Because he would lose credibility, and he wants to be credible.”
