There will be a new Fed Chair this month, as Kevin Warsh is expected to be confirmed by the U.S. Senate to fill the seat. But, for the first time in almost 80 years, the previous Fed Chair will be sitting nearby as a governor.
The Federal Open Market Committee convenes again in mid-June, and current Fed chair Jerome Powell will be among the governors after he leaves his post on May 15. Warsh and Powell serving together is a historic overlap that comes at a sensitive time for the central bank, CNBC noted.
“Both Kevin and Jay will be able to interact, and I think the rest of the FOMC will be able to interact, although I grant that it may be challenging,” said Loretta Mester, who served as Cleveland Fed president until 2024 and knows what happens behind the doors of the committee meetings well. “They’re all adults, and they all know what the mission of the Fed is, and I’m very confident that that’s what will drive decision making, not any of these other things that people are worried about.”
CNBC noted that although Mester and other observers expect the Fed’s collegial reputation to prevail, there is potential for drama. The unusual situation raises the possibility for competing policy positions, CNBC noted, even if expressed subtly, as the markets await the Fed’s next move.
CNBC noted that Warsh himself has called for “regime change” at the Fed, widely interpreted as a direct shot at Powell’s leadership. Also, President Donald Trump, who nominated both men, has been a persistent Powell critic and has made no secret that he expects Warsh to lower rates.
A Rare Four Dissents
And, Powell’s apparent last turn as Fed chair underscored the potential fault lines, with a rare four dissents from the post-meeting statement, mostly from members who objected to a subtle phrasing in the document that could be interpreted as a signal of policy easing ahead.
According to The Hill, Powell has pledged to keep a “low profile,” but top Trump allies are fuming, and some economists say it could lead to a clash on the board of governors between the new and old chair.
“The decision that Powell will make on whether to remain on the board will shape the early term of Kevin Warsh, who appears likely to receive confirmation as Powell’s successor,” Joe Brusuelas, Principal and Chief Economist for RSM US, wrote in a note.
“Should Warsh arrive at the Fed and intend to cut rates, Powell would almost surely end up dissenting if he remains on the board,” Brusuelas said. “And that would in effect make Powell the shadow chair well into 2028.”
CNBC noted that the three “no” votes at the last meeting — from regional presidents Neel Kashkari of Minneapolis, Lorie Logan of Dallas, and Beth Hammack, who succeeded Mester in Cleveland — could be seen as a shot across the bow at Warsh in his quest to lower interest rates.
“Kevin Warsh is not going to, I don’t believe, be able to come in there and convince his colleagues that this is the time to cut rates,” Mester said. “He’s also going to want to evaluate the economic situation before he can argue that it’s time to start moving interest rates again.”
Inflation is Above Fed Target
CNBC noted that current economic conditions provide little ammunition to argue for policy easing.
Fresh data showed core inflation running at 3.2% in March, well ahead of the Fed’s 2% target, as the Iran war and its impact on oil prices is compounding with tariff fallout to keep consumer prices elevated.
Weekly jobless claims fell to their lowest level since September 1969, providing more evidence that the labor market is at least stable as layoffs hold at their lowest level since the early years of former President Richard Nixon.
CNBC said that the data, then, present another potential for clashes at the FOMC.
The last time a Fed chair remained on as a governor after stepping down was in 1948, when Marriner Eccles stayed on amid tensions with the Truman administration.
In announcing Wednesday his intention to stay on at the Fed after his term as chair expires in May, Powell played down any chance of a rivalry, insisting he won’t be seeking to thwart Warsh’s agenda and vowed not to be a “shadow chair.”
Instead, Powell focused on his desire to wait for a conclusion to the inspector general’s investigation of the Fed headquarters renovation, The Hill reported.
“I plan to keep a low profile as a governor. There’s only ever one chair,” Powell said, adding that he had no desire to be “a high-profile dissident or anything like that.”
“I think this is, and will be, a very normal, standard kind of a transition process,” he added.
