"The New Federal Reserve News Agency" states that the market strongly hints that the interest rate cut cycle for 2024-2025 has ended.

Written by: Li Dan

Source: Wall Street Watch

On Wednesday, the 13th, Eastern Time, the U.S. Senate officially confirmed Kevin Warsh, a former Federal Reserve governor, as the Chairman of the Federal Reserve through a full chamber vote. Although the Senate confirmation was expected by the public, the number of votes supporting Warsh only had a slight advantage. This reflects the polarization of congressional politics and indicates that Democrats are concerned that Warsh will yield to President Trump's demands for swift interest rate cuts.

The voting result for Warsh's nomination to the Federal Reserve chair was almost entirely along party lines, with the nomination receiving support from 54 senators, only 9 more than the 45 opposing votes. Among the supporters, 53 were Republican senators, while only John Fetterman, a senator from Pennsylvania, crossed party lines.

According to media statistics, based on the above voting results, this is the "narrowest confirmation" vote for a Federal Reserve chair since Congress required that nominations must be confirmed by the Senate in 1977. In contrast to Warsh, the previous nominations for Fed chairs had much larger confirmation margins.

Current Federal Reserve Chair Jerome Powell secured at least 80 votes in favor during his two terms. Powell's predecessor, Janet Yellen, received 56 votes in favor and just 26 against when confirmed in 2014, with many senators absent due to poor weather.

Powell's term as Federal Reserve Chair is set to end this Friday, May 15, and after confirmation in the Senate, Warsh will officially take over on May 14, beginning a four-year term as chair. Warsh has already been confirmed for a 14-year appointment as a Federal Reserve governor in Tuesday's Senate vote.

Warsh's tenure undoubtedly comes with challenging monetary policy decisions. Earlier this week, after the unexpectedly hot U.S. CPI data for April was released, journalist Nick Timiraos, known as the "New Federal Reserve News Agency," pointed out that the CPI report means that interest rate cuts are no longer a story for 2026, and Trump, who nominated Warsh, has already made clear his strong hopes for the Fed to cut rates, which signals trouble for Warsh.

Before the Senate vote results were announced, Timiraos also stated earlier on Wednesday that the market strongly hinted that the interest rate cut cycle for 2024-2025 has ended. He mentioned a market performance: the yield on two-year U.S. Treasury bonds rose to its highest level since June of last year on Wednesday, where the Fed's policy rate in June of last year was 75 basis points higher than it is now.

Media reports indicate that an increasing number of Federal Reserve officials believe that the Fed should clearly indicate that the next steps on interest rate adjustments could involve both rate hikes and cuts. This means that if Warsh attempts to push for rate cuts that other officials deem unfounded, he will face strong resistance.

Taking office under the shadow of "politicization": The independence of the Federal Reserve faces unprecedented controversy

The confirmation process for Warsh is particularly noteworthy not just because the vote was close, but also because it took place against the backdrop of escalating political controversy over U.S. monetary policy.

In recent months, President Trump has publicly pressured the Federal Reserve to cut rates, criticizing Powell for taking action "too slowly" and frequently implying his desire for the Fed to cooperate more with the White House's economic agenda. During the hearings related to Warsh's nomination, Democratic lawmakers focused on questioning whether Warsh could truly maintain the Fed's independence.

In response to these doubts, Warsh emphasized during the hearings that he had made no policy commitments to Trump and would never become a puppet of Trump's, pledging to uphold the monetary policy independence of the Federal Reserve.

However, the market generally believes that Warsh's tenure will enter a more sensitive phase regarding the relationship between the Fed and the White House.

It is noteworthy that while Powell is stepping down as Fed Chair, he still plans to retain his identity as a Fed governor, which means that for a period of time, there may be two different styles and policy ideas within the Federal Reserve.

Warsh: Former hawk turns moderate

The 56-year-old Warsh is not a "parachutist."

He served as a Federal Reserve governor from 2006 to 2011, making him one of the youngest governors at that time, and participated in core decision-making during the 2008 global financial crisis. After that, he remained active on Wall Street and in academia, working at the Druckenmiller Family Office and serving as a researcher at Stanford University's Hoover Institution.

Compared to Powell, Warsh’s monetary policy ideology leans more toward being "hawkish."

He has long criticized the Federal Reserve for maintaining an ultra-loose policy for too long post-pandemic, believing that it directly led to rising inflation in the following years. He has also frequently advocated for reducing the Federal Reserve's balance sheet, decreasing "forward guidance" on future rate paths, and pushing the Fed to "return to a more traditional central bank role."

However, the market has also noticed that Warsh has made more moderate public statements on interest rates recently, which some Democratic lawmakers view as aligning more with Trump's stance on rate cuts.

Warsh faces top challenge: Inflation resurges

The most immediate challenge facing Warsh is the renewed inflation pressure in the U.S.

The April CPI and PPI data released this week showed that energy prices and geopolitical risks have driven inflation back up. The U.S. CPI in April rose 3.8% year-on-year, while the April PPI increased 6% year-on-year, marking the largest increases in nearly three and over three years, respectively.

At the same time, the escalating situation in the Middle East, the risks in the Strait of Hormuz, and soaring oil prices have further increased input inflation pressures.

This means that, while the Trump administration hopes to push for rate cuts to stimulate economic growth, the existing inflation environment may not permit the Federal Reserve to quickly shift to a loose monetary policy.

In other words, Warsh is likely to face a dilemma right from the start of his tenure: "the White House hopes for rate cuts" versus "economic data not supporting rate cuts."

How to alleviate market concerns about the Fed's credibility is another significant challenge

Beyond mere interest rate decisions, a deeper issue lies in whether the market still trusts the Fed's independence.

Over the past year, attacks on the Federal Reserve from the U.S. political sphere have clearly escalated, from controversies over pressuring the White House to cut rates, to the Department of Justice investigating the Fed's headquarters renovation project, to some Republicans openly calling for Powell's resignation, all raising external concerns about the erosion of the central bank's independence.

And Warsh's almost "purely partisan" confirmation process only reinforces this concern.

In contrast, Powell previously received over 80 Senate votes in his two appointments as Fed chair; Yellen also secured 56 votes when confirmed in 2014.

Analysts believe that moving forward, Warsh will need not only to formulate monetary policy but also to rebuild market trust in the Fed's "non-politicization."

The June meeting may welcome the "first storm" of his debut

The first significant test following Warsh's appointment is likely to be the FOMC monetary policy meeting held on June 16 to 17.

Currently, there is a clear increase in division within the Federal Reserve regarding whether to raise rates, maintain them, or cut them.

On one hand, U.S. economic growth is beginning to slow; on the other hand, inflation and oil prices are rising again.

The market generally expects that the Fed may not cut rates this year, but the Trump administration evidently does not accept this outlook.

Therefore, Warsh's first policy meeting will not only determine the direction of interest rates but will also become the first pressure test for the market to observe whether he tends toward "political compromise" or "central bank independence."