Kevin Warsh will be sworn in as Fed Chair at the White House on Friday
US President Donald Trump will swear in Kevin Warsh as the next Federal Reserve (Fed) Chairman on Friday at the White House, a White House official told CNBC on Monday.
Last week, Warsh was voted by the US Senate to succeed the current temporary Federal Reserve Chairman Jerome Powell for a four-year period, beginning this Friday.
Warsh will face a tough economic environment and political pressure from Trump, who, since the beginning of his second presidency, has pushed for lowering interest rates, even though the disinflation process has reversed course, according to the latest data.
Last week's releases showed the US Consumer Price Index (CPI) rose 3.8% YoY in April and the Producer Price Index (PPI) increased by 6%. Therefore, money markets had priced in no interest rate cuts; instead, they’re expecting a rate hike towards the end of the year, according to LSEG data.
(This story was corrected on May 18 at 17:45 GMT to say that US CPI rose 3.8% in April, not 3.7%.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
