A FED in Turmoil Faces a Kevin Warsh Led Future: Will it Help?

Rarely has the Federal Reserve been in as tumultuous a position as it is now. It faces a teetering economy, with a rising, war-induced inflation rate of 3.3% as of April 2026 and an uncertain labor market (Putzier and Timiraos 2026). Despite three consecutive rate cuts to end 2025, President Trump has stayed consistent in his barrage of attacks on the Federal Reserve board (Horsley 2026). Chief among his fights for control has been an attempt to fire Lisa Cook and an investigation into Jerome Powell over his testimony regarding building renovations in Washington, D.C. (Elmendorf 2026). While this legal probe into Powell has seemingly been completed, it has created unintended consequences for the president. Fearful for the FED’s future independence, Powell has broken 75 years of precedent by choosing to remain on the FED board after his term as chair expires on May 15 (Timiraos 2026). This complicates matters for Powell’s replacement, former FED governor Kevin Warsh. Nominated by President Trump, Warsh previously served on the board from 2006 to 2011, and played a key role in issuing bailouts during the 2008 financial crisis (Reuters 2026). He was approved by the Senate Banking Committee in late April, making his final barrier to confirmation a simple majority in a Republican controlled senate (Breuninger 2026). Once confirmed, Warsh has his work cut out for him. Similarly to the president, Warsh believes rate cuts are the board's best course of action (Breuninger 2026). Powell’s decision to stay on risks undermining Warsh’s new ideological approach, but the state of the FED overall is an even larger concern. Internally, the board is becoming increasingly divided on whether to hold or lower interest rates. Out of 12 voters, three dissented in the board's decision to cut rates at the end of 2025, the most since 2019. Two voted against a rate decrease, while the newest member of the board, Steph Miran, voted to cut by a larger amount (Fox 2025). The war in Iran has further complicated matters, creating hesitance about the nationwide economy and resulting in an 11-1 vote to maintain current rates at the FED’s most recent April meeting. Notably, the decision had 4 dissents, the most since 1992. The dissents that voted to approve the rate decision declined to support an “easing basis”, the notion that, going forward, a rate cut is more likely than a rate hike. Miran again voted in favor of a rate cut. (Timiraos 2026). To call this a difficult situation for Kevin Warsh to walk into would be vastly understating the task at hand.

Trump's demands and relationship with the current chair, Jerome Powell, give some insight into what the president expects from Warsh. In August of 2024, during his bid for reelection, President Trump voiced his disapproval of the Federal Reserve: “I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.” Over the subsequent year and a half, the president's frustration with Powell has only grown. Although the two have rarely been on particularly pleasant terms (Trump suggested Powell was a greater enemy to the state than Xi Jinping in his first term via X), their relationship has completely deteriorated since Trump took office. Despite cutting interest rates at the last three FED meetings of 2025, Trump has remained unsatisfied (Horsley 2026). The feud recently boiled over into legal attack when the Justice Department began an investigation into over-budget renovations of FED buildings, with Powell’s testimony on the matter singled out in particular (Elmendorf 2026). In response to the Federal Reserve being issued grand jury subpoenas, Powell published his stance on the matter via video, which claims an alternative motive for the legal challenges: “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.” Such “threats” may have backfired on Trump. Powell’s decision to stay on denies the Trump administration a vacancy they could’ve filled with an ally for Warsh. The most likely choice would be current FED governor Stephen Miran, who is slated to replace Warsh. Miran was the sole supporter of rate cuts at the most recent meeting, and his forced departure is a major blow to the president's goals (Timiraos 2026).

The nexus of this rift between Trump and Powell is an ideological difference in how the Federal Reserve should function. The Federal Open Market Committee, which comprises the 7 members of the Federal Reserve Board of Governors and five rotating Federal Reserve Bank Presidents, is the body that makes interest rate decisions. Price stability and maximum employment are cornerstone goals of the committee, with a 2% or less inflation rate being desirable (Federal Reserve System 2026). Generally, the committee raises rates when the economy grows too quickly, hoping to avoid inflation spiking before wages can rise. Inversely, rates are cut when the economy slows, and unemployment rises (Navy Federal 2026). Powell’s justification for leaving rates unchanged in 2026 lies in a stabilizing job market and an inflation rate still well above the 2% target. Trump and his supporters view this approach as needlessly cautious and detrimental to the economy. These claims became louder following surprisingly positive job and inflation reports from January, in which 130,000 jobs were gained, and inflation shrank to 2.5%. Press secretary Kush Desai said, “With inflation now low and stable, America’s economy is set to turbocharge even further through long-overdue interest rate cuts from the FED.” This concept of “turbocharging” the U.S. economy has been widely touted throughout the Trump regime, relying on the assumption that the AI boom alters the traditional rationale of raising rates during periods of job stability. Director of the National Economic Council, Kevin Hassett, is one such supporter of this idea, as following the job reports, he said there was “plenty of room for the FED to cut rates.”

Recent signs suggest that Warsh may attempt to drastically alter the board’s current practices. In an interview with CNBC last July, Warsh advocated for a “regime change” in the central bank, and stated his incumbents had caused a lack of credibility in the FED. (Cox 2026). Additionally, many are predicting Warsh to share a similar mindset as Hassett, such as Michael Pearce, deputy chief economist at Oxford Economics: “Warsh appears to prefer a return to a more forward-looking approach, based on the idea that the economy has entered a structural acceleration in the rate of potential economic growth, fueled by AI, among other factors.”

Despite these indicators, Warsh’s career history suggests an ideological divide between himself and Trump. Warsh served on the board from 2006 - 2011, helping design emergency efforts to stabilize credit. He exited his time at the FED with a negative view of near-zero interest rates, claiming they “ran the risk of distorting markets and undermining long-term price stability” (Cox 2026). Before 2024, Warsh was a consistent advocate against quantitative easing (a practice in which the FED buys assets to stimulate the economy) and had constant concern about rising inflation. Recently, he has become a proponent of lowering rates and the idea that AI prevents the risk of a rapidly growing economy causing severe inflation. Some journalists believe that, despite this apparent change of heart, Warsh may be a more hawkish chair than Trump anticipates (Baker 2026).

Even if Warsh acts ideologically with the president’s wishes, he must still unite a divided FED firmly opposed to cuts, at the same time as trying to convince Powell that his motivations are not partisan-driven. Powell has cited concern for the political independence of the FED in his staying on, stating a wish to “let the FED do our thing.” In some good news for Warsh, Powell seems unlikely to challenge the new chair’s position of power. When asked about his future role on the board, he expressed plans to keep a “low profile” (Brown and Irwin 2026). Despite this, the unusual nature of Powell’s presence may provide remnants of support for the FED’s past ideological framework, one Warsh hopes to fundamentally change (Timiaros 2026).

Additionally, Warsh will enter office with high expectations from the president, who may be quick to criticize or attack Warsh if he is slow to make progress. The state of the FED and the national economy presents him with an uphill battle. The rapid increase in consumer prices due to the war in Iran has led even the most dovish of governors to support unchanged rates. Governor Christopher Waller was one of two governors to support a rate cut during the FED’s January meeting, but now seems much more reluctant to do so, citing a raise in prices from the crisis (Grossman 2026 & Escobar 2026). Many banks have altered their interest rate predictions, and now largely anticipate no cuts through the rest of the year. As of April 2026, JP Morgan forecasts rates to stay steady until eventually increasing by 25 basis points in the third quarter of 2027 (JP Morgan Website, 2026). Overall, it seems doubtful that Warsh will be able to unify the FED under Trump’s pursuit of rate cuts. If Warsh does stay true to his newfound preference for looser monetary policy, he may have a hard time getting a currently extremely hawkish board to agree with him. If Warsh deviates, Trump’s dissatisfaction will grow, resulting in greater chaos in the fight for the Reserve's independence.

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