Winning Senate approval may be the easy part.
The path has been cleared for Kevin Warsh to become the next chairman of the Federal Reserve in mid-May, when Jerome Powell’s term ends. Sen. Thom Tillis cancelled his obstruction to Warsh after the Department of Justice closed its criminal investigation of Powell, clearing the way for approval. The Senate Banking Committee has scheduled a vote on Warsh for tomorrow, and a greenlight is likely, which would allow the nomination to proceed to the full Senate. At that point, the real challenge begins.
Warsh arrives at the Fed during what looks like a perfect storm of challenges for monetary policy. The macro threats include turmoil from the Middle Eastern conflict, energy shocks, rising pressures, and tariff‑strained effects on global trade. He will also oversee policy at a time of massive and growing federal debt.
And then there’s President Trump’s demand for rate cuts. All of these factors will test Warsh’s resolve far more than anything he’ll face during the upcoming confirmation hearing.
For now, markets expect the Fed to keep rates steady. At tomorrow’s policy meeting, are pricing in a virtual certainty of no change. In fact, futures anticipate that the current Fed funds target rate will remain at the 3.50%–3.75% range through the end of the year.
Defending a steady policy stance if inflation heats up will be difficult in the current environment. Making the case for rate cuts will be even harder at a time when energy costs have surged, pushing up headline inflation measures. An early sign of what’s coming appeared in the March consumer price report, which showed a 3.3% annual increase—a two‑year high and a sharp jump from February’s 2.4% pace. Spiking energy prices are the culprit.
The optimistic view is that the energy shock will be temporary and that, while prices have risen, the pace of increase will soon moderate. Perhaps—but with the Middle East crisis settling into a stalemate and energy exports still blocked, a quick resolution seems unlikely. There’s also the institutional memory lurking that the Fed predicted that the inflation shock of 2021-2022 would be temporary and modest, which turned out to be one of the biggest policy errors in decades. Arguing that it’s different this time will be a rough position to defend.
What is clear is that the longer energy prices remain elevated, the greater the risk that higher inflation becomes embedded in the economy.
For context on what may be developing, The Capital Spectator generated a forecast using a basic ensemble model to project the near‑term outlook. Unsurprisingly, the modeling indicates that inflation is likely to edge higher and hold above 4% for the foreseeable future.
is expected to follow a similar path, though at a lower level of roughly 3%‑plus.
In other words, the inflation shock moving through the global economy is being driven by energy, food, and commodities more broadly. Central banks often struggle with inflation rooted in these factors, which is why the Fed prioritizes core inflation as its target.
Given the war‑driven shifts in the inflation backdrop, cutting rates will be a difficult case for Warsh to make to his fellow policymakers on the Fed board. That may set up a new conflict with Trump, who has been publicly pushing for rate cuts.
One scenario in which rate cuts could become pragmatic is if the energy shock weakens growth more than it raises inflation. In that case, the Fed may lean on its mandate to maximize employment as justification for easing policy.
The only certainty at the moment is that a resolution to the Fed’s dilemma appears unlikely anytime soon. The Strait of Hormuz remains closed, blocking roughly 20% of global .
In short, the real test for the Fed isn’t the upcoming vote—it’s the storm waiting for Kevin Warsh on the other side of it, when he steps into a Fed facing the fiercest crosswinds in a generation.