Note: This piece was originally featured in the February 2026 edition of MortgagePoint magazine.
With Jerome Powell’s second four-year term as Chair of the Federal Reserve officially set to expire on May 15, 2026. and Kevin Warsh nominated to step in as Fed Chair, the 112-year-old Federal Reserve faces mounting political demands, sharp internal divisions, and a defining test of its independence.
The Federal Reserve System came into existence on Dec. 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, establishing the nation’s central banking system to provide financial stability after financial panics, especially the 1907 crisis, highlighted the need for central control.
The Fed system officially began operations with the opening of its 12 regional banks in 1914.
The Great Depression brought many changes to the Fed. Various pieces of legislation altered the Fed’s structure, gave it some new powers but took away others, and fundamentally reshaped the structure and regulation of the U.S. financial system. The Banking Acts of 1933 and 1935 shifted the balance of power within the Federal Reserve away from the 12 Reserve Banks to the Federal Reserve Board, which was renamed and reconstituted as the Board of Governors of the Federal Reserve System.
The past year has seen the Federal Reserve ride a turbulent wave of political pressure, economic challenges, and attacks on its independence. Now, the 112-year-old institution will have new leadership to tackle a host of critical issues.
President Donald Trump has tapped former Fed Governor Kevin Warsh to become the next Fed Chair after current Chief Jerome Powell leaves the post in May. Warsh will be leading the institution whose independence is under political attack, with President Trump consistently pushing the central bank to lower interest rates.
What will the future hold under Warsh’s leadership?
The Challenges of the Chair
Although he will take the role of Fed Chair once he has been confirmed by the Senate, Warsh will be just one of 12 voting members of the Federal Open Market Committee, which decides whether interest rates go up, go down, or stay steady. In January, the FOMC voters chose the latter after having lowered interest rates in December and twice in the preceding two months.
Warsh, a former member of the Fed’s Board of Governors, will lead a central bank that is more divided on the economy than at any point in more than 30 years, some analysts have said. Moreover, if the president thinks Warsh will be able to rapidly lower interest rates, he might be in for a surprise.
Here’s why.
Hiring has fallen, but inflation remains elevated, and that has fostered dissent among central bank policymakers who traditionally seek consensus on monetary policy decisions. Key members of the powerful Federal Open Market Committee are in no rush to lower rates, and that hints that the heavy public pressure that Trump has placed on the Fed to reduce borrowing costs may continue even under Warsh’s leadership.
“It is the most highly divided committee that you have maybe ever seen,” Matthew Luzzetti, Chief U.S. Economist
at Deutsche Bank, told Politico recently.
“If Warsh comes in and is looking to change policy discreetly in a more dovish direction, that will be a challenge.”
Yale Economics Professor Bill English, a former top Fed economist who led its monetary affairs division, put it this way: If Warsh seeks to “deliver significantly lower rates, he’ll need to get the votes.”
Months of Steady Pressure on Powell
English added, “Barring an economic surprise—inflation plummets, unemployment goes up a whole lot—I doubt there’ll be support to get the sort of rates that the president would like to see.”
Months of steady pressure from the president for Powell to heed his demands on monetary policy have created ongoing tension between the central bank and the White House.
The president’s efforts to push Fed officials have stoked fears that he will try to stack the central bank with allies, according to a report in Politico. But the laws governing the Fed are written to insulate monetary policymakers from direct political influence because that could limit their ability to fight inflation.
Some officials, including Powell, view the president’s attacks as a threat to the Fed’s independence.
Warsh has experience as a Fed governor during the financial crisis of 2008 and has strong credentials in conservative economic policy circles, and on Wall Street, where he previously worked as a Morgan Stanley banker. But will that background be enough? In December, Trump said that whoever he chose, the Fed chair would have to follow his orders.
“Anybody that disagrees with me will never be the Fed Chairman!” Trump posted on social media.
Powell recently said that there was broad support across the FOMC to hold short-term rates at current levels, a decision that angered Trump. Two Trump-appointed Fed governors pushed for another cut, which portends deepening divisions as the president seeks to appoint more members to the committee.
White House spokesperson Kush Desai said in a statement that Warsh’s “qualifications and standing to serve as the next Federal Reserve Chairman are
unimpeachable. It is the Federal Reserve’s job to set monetary policy based on what the data show, and the data objectively show that inflation has cooled and the environment is ripe for interest rate cuts.”
Desai added, “It is not just President Trump saying so. Wall Street firms and financial industry titans are also calling for rate cuts because it is the right policy move to make.”
But can Warsh make that case? The president is counting on it.
Richard Clarida, Managing Director of the New York office and PIMCO’s Global Economic Adviser, recently wrote that Warsh, when confirmed by the Senate, will “serve as an effective, thoughtful Fed Chair.”
Clarida, who is also the C. Lowell Harriss Professor of Economics and Professor of International and Public Affairs at Columbia University, said that Warsh brings “intriguing ideas on ways to change and ideally improve how the Fed operates. We also remain confident in the outlook for Fed independence, which appears to have broad support not just in markets but in Congress as well.”
Ed Delgado, Chairman Emeritus of Five Star Global (parent company of MortgagePoint) and Principal at Mortgage Policy Advisors, told MortgagePoint, “Kevin Warsh is a strong choice to lead the Federal Reserve. His deep expertise in capital markets and his service during the financial crisis have given him a clear-eyed view of the risks inherent in banking. His past policy stances demonstrate an independence of thought leadership while maintaining a commitment to the Fed’s dual mandate that will serve the nation well.”
Where Warsh Stands
Warsh has written and spoken over the past 15 years about Fed policy, Clarida said, and has raised concerns about the size and composition of the central bank’s balance sheet.
“He has also questioned the central bank’s reliance on forward guidance—which he believes is excessive and sends confusing signals about future monetary policy—along with what he views as the Fed’s failure to anchor policy formulation and communication to policy rules that are less subject to meeting-by-meeting discretion,” Clarida wrote.
Clarida noted that, recently, Warsh has argued for a new “Treasury–Fed accord” that could, depending on its details, provide a framework over time for the Fed working in tandem with the Treasury—and perhaps also with the housing agencies Fannie Mae and Freddie Mac—to reduce the size of its balance sheet.
He said that is noteworthy because the Fed once again is growing its balance sheet via reserve management purchases of T-bills. Under Warsh’s approach, Clarida said a new framework also could include the Fed gradually shifting the composition of its balance sheet to a much shorter duration than at present, as was the practice before the Global Financial Crisis between 2007 and 2009.
Clarida said that the biggest difference investors may notice between the Fed under Warsh and those under the auspices of Jerome Powell, Janet Yellen, and Ben Bernanke is the communication policy.
Headwinds to Come?
Based on his writings since leaving the Fed, Clarida said Warsh may be much less likely to rely on extensive forward guidance about the future path of interest rates, especially during “normal” times such as today, when interest rates are not pinned at the zero bound.
Clarida noted that Warsh can point to precedent: Paul Volcker for eight years and Alan Greenspan for his first 17 years chaired Feds that “delivered price stability and supported strong growth with little if any forward guidance as we know it today on the future path of policy rates.”
While Warsh was hawkish on inflation during his previous stint on the central bank’s board, he recently contended that the Fed was slow to cut—echoing the president’s views.
However, that does not mean Warsh will enjoy the same level of unanimity that previous Fed chairs experienced for long stretches of their tenures, Politico suggested.
Dissents on rate decisions have become more common as the economy continues to recover from a post-pandemic inflation surge.
Those divisions intensified since last summer, after Trump appointed one of his top advisers, Stephen Miran, to the Fed’s board. Miran recently resigned from his role as Chair of Trump’s Council of Economic Advisers to stay on the Fed board, and he repeatedly voted for jumbo cuts.
In early February, Powell signaled that central bank policymakers are in no rush to cut further.
The regional Fed presidents who rotated onto the committee in January have been hawkish when it comes to inflation, suggesting they may be likely
to favor higher interest rates. Fed Governor Christopher Waller, a Trump appointee who was a finalist to replace Powell, has warned that the labor market faces a serious risk of deterioration.
Roger Ferguson, a former Fed Vice Chair who was later President and CEO of the Teachers Insurance and Annuity Association of America, said it’s always difficult for incoming Chairs to convince FOMC members of their views on the economy and monetary policy.
Ferguson said that another challenge is being able to sway policymakers on “why whatever decision they make is
independent of political influence.”
He said the challenge is “clearly more acute” in the Trump era.
Ferguson added that Warsh’s ability to navigate a bumpy political and economic backdrop will determine “whether he gets off to a very smooth start or to a rockier start” at the Fed.
Warsh has argued that the central bank needs a fundamental shift in how it operates. beyond just incremental adjustments. He says the current policy framework under Powell lacks credibility and needs a new approach to meeting its core goals of price stability and employment.
A big question is yet to be answered: How will Warsh invoke a new approach in an institution that is over a century old?
