Overview
- Kevin Warsh was sworn in as Federal Reserve chair on May 22 and said he will govern more like Alan Greenspan by cutting back forward guidance and fewer routine public communications.
- Warsh emphasized Fed independence and said he favors shrinking the central bank’s bond holdings and using interest-rate policy rather than frequent signals to guide markets.
- Investors initially welcomed Warsh as potentially market-friendly but have pulled back hopes for quick rate cuts as oil-price rises tied to the Iran conflict and higher inflation raise borrowing costs.
- The Fed held its policy rate at 3.50%–3.75% on April 29 in an 8-4 vote and the June 16–17 FOMC meeting will be Warsh’s first major policy test with markets pricing a near-certain hold and a meaningful chance of a hike by year-end.
- The path for future cuts depends on whether energy prices and inflation fall; consumers and borrowers should prepare for rates to stay higher for longer while the Fed reassesses data on inflation, yields and the Iran conflict.