For Warsch, the road to the Fed is downhill

It could represent a turning point for Kevin Warsh designated new central banker since January 30ththe prosecutor’s decision that closed the criminal investigation into Fed Chairman Jay Powell. The road now to have the confirmation by the Senate it could in fact be downhill for him. Some Republican senators, led by Thom Tillis of North Carolina they were indeed refused to support his nomination due to the ongoing criminal investigation, raising speculation that Powell could remain Fed chair beyond May 15.

Just in recent days Tillis declared that he will support Warsh “once the Department of Justice has closed its unfounded investigation into President Powell which threatens the independence of the Fed”. The effects of the Prosecutor’s decision on the markets were not long in coming: Treasury bond yields fell as investors bet that Warsh’s quick confirmation would ultimately lead to lower interest rates.

Treasury bonds

Il Treasury bond yields at two years, which moves based on the expectations of monetary policyfell 0.05 percentage points to 3.79%. Wall Street, however, has weakened and is now trading mixed, also held back by the uncertainty regarding the resumption of negotiations between the USA and Iran. Traders have thus increased their bets on an interest rate cut this year, even though the odds have only been raised to around 40%.

Who is Warsh

Warsh, a former Fed governor, needs 51 senators to support his nomination. Republicans hold a 53-seat majority in the upper house of Congress. Known for being the youngest Fed governor ever when he joined the Board in 2006 (he held the position until 2011), Warsch can also count on his contacts on Wall Street and in Washington political circles.

And in fact even the CEO of JP Morgan, Jamie Dimon, one of the most influential voices in the financial field, has supported him in recent months. While he is considered a proponent of lower interest rates, he is also seen as one of the less radical choices among the various proposed candidates and perhaps more cautious than others about strong monetary stimulus.

Trump’s pressure

Will he be able to resist pressure from Trump who wants monetary tightening to be eased as soon as possible? The Fed’s reference rate is set by a majority of the 12 members of the Federal Open Market Committeewhich is the Steering Committee of the central bank. This means that Warsh will not have unilateral power to set interest rates even if he gets confirmation. Meanwhile, with US inflation rising last month to 3.3% annually the highest reading in almost two years the new central banker may face resistance in persuading other Fed officials to ease rates.