U.S. Senate votes to approves Trump's pick for Federal Reserve chair

The U.S. Senate has confirmed chair Donald Trump's nominee to lead the Federal Reserve, Kevin Warsh, bringing new leadership to the world's most powerful central bank at a fraught moment for the global economy.

Warsh was confirmed as chair Wednesday in a vote that fell largely along party lines.

His nomination had been thrown into doubt in recent months after Republican Sen. Thom Tillis said he would block the nomination as long as the Justice Department continued to investigate current chair Jerome Powell.

The Powell probe was dropped in April, clearing the way for the Senate to confirm Warsh.

Senate Majority Leader John Thune urged colleagues to support Warsh during a floor speech Wednesday morning, saying it was critical that a Federal Reserve chair "understand not only the macro" but also "appreciate the microeconomy: and that's the hardworking Americans, their jobs and their livelihoods."

"Kevin Warsh is just such a person," Thune said.

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Warsh, 56, a former top Federal Reserve official, becomes chair at an unusually difficult time for the independent agency.

Inflation has topped the Fed's two per cent target for five years and is now rising faster because of spiking gas prices.

The Fed's interest rate-setting committee is divided and last month saw the most dissenting votes in more than three decades. Powell, after years of personal attacks from Trump and an unprecedented legal investigation by the Justice Department, plans to stay on the Federal Reserve board even after his term as chair ends, potentially creating a competing power centre.

The Federal Reserve has faced numerous threats to its independence from Trump, who has repeatedly attacked Powell for not cutting interest rates. Trump also sought to fire Fed governor Lisa Cook and launched an investigation into Powell over a building renovation.

Kevin Hassett, director of the White House's National Economic Council, said in a Fox News interview on Sunday that he believes the markets are relieved that Warsh "is going to help lower interest rates over time."

"Obviously, data driven," said Hassett. "I'm not putting any pressure on Kevin Warsh."

In December, Trump said on his social media platform that he wanted a Federal Reserve chair who would cut interest rates when the stock market rose — the opposite of what traditional economics would prescribe — and added, "Anyone that disagrees with me will never be the Fed chairman!"

Trump's comments have fuelled concerns over whether Warsh will set rates based on economic conditions or seek to cut rates to appease Trump, even if doing so could worsen inflation.

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At Warsh's confirmation hearing last month, Democratic Sen. Elizabeth Warren derided him as a "sock puppet" for Trump. Warsh declined to say that Joe Biden had won the 2020 presidential election against Trump, who has falsely claimed that voter fraud cost him re-election.

Warsh denied at the hearing that Trump had pressured him to reduce the Fed's key rate.

"The president never once asked me to commit to any particular interest rate decision, period," Warsh said then. "Nor would I ever agree to do so if he had."

He added that he would be "an independent actor" if confirmed as chair.

Warsh has been highly critical of the Federal Reserve's recent track record, particularly the inflation spike in 2021-22 — the worst in four decades — and has called for "regime change." Yet he has provided only broad outlines of what that change would involve.

He has called for limiting the Fed's communications, which would be a sharp shift after decades of increasing transparency. He has argued some of its communications tools, such as quarterly forecasts of where its key rate may head, have made it harder for officials to switch gears.

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Senate Democrats have also condemned Warsh for not fully divulging the details of his extensive wealth, which disclosures show amounts to at least $100 million US. His investments include stakes in Polymarket and SpaceX, but he hasn't revealed how large those holdings are. He promised to sell all such assets within 90 days of being sworn in.

"He will be the wealthiest Fed chair in history, but he refuses to provide transparency to the American people about who he is entangled with," Warren said.

The Federal Reserve is still grappling with how to respond to the 50 per cent spike in gas prices caused by the Iran war. The increase has boosted inflation, which reached 3.8 per cent in April.

The Fed is tasked by Congress with keeping prices stable, which it seeks to do by raising its short-term rate to make borrowing and spending more expensive, cooling growth and inflation.

It typically looks past temporary price increases that stem from supply disruptions, such as the war's cutoff of oil through the Strait of Hormuz, because those prices typically level off — or even fall back down — once supply is restored.

The Fed's rate-setting committee has kept rates unchanged for three straight meetings as it evaluates the impact of the gas price spike. At its most recent meeting last month, three members of the committee objected to language that suggested its next move would be a rate cut. They preferred more neutral language that would allow for a hike.

Many Fed watchers saw those dissents as a warning shot to Warsh that he won't be able to easily engineer rate reductions.

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