Will Trump Clash With Warsh? It’s More Likely Than Many Believe

On Tuesday, Kevin Warsh is scheduled to face the Senate Banking Committee, as part of his confirmation process. Warsh was selected by President Trump to become the next Chair of the Federal Reserve.

Much of Warsh’s speech was previewed on Monday, and the comments revealed an intense focus on inflation. That’s great news for consumers, who are still being pounded by prices that are rising faster than the Fed’s stated annual goal of 2%.

Collision Course

Warsh's focus on inflation sets a potential collision course with Trump, who has been vocal about his desire for lower interest rates. Warsh, a hawk to Trump’s dove, seems unlikely to acquiesce to the president’s wishes, especially with the latest reading showing consumer prices rising at a 3.3% annual clip.

If you don’t believe Trump would appoint a Fed Chair that might oppose his policies, think again. Trump appointed current Jerome Powell, who assumed that position in February 2018. Trump has frequently ripped Powell since re-taking office in 2024, repeatedly threatening to fire him.

Could Powell Stay?

Although Powell’s term is scheduled to end on May 15, prediction markets indicate that it’s unlikely that Warsh will be confirmed by that date.

According to Polymarket, there is a 34% chance that Warsh is confirmed by May 15. Kalshi has the odds at just 30%.

Warsh’s chances for confirmation improve with time. Kalshi sees an 85% chance of Warsh’s confirmation by July, while Polymarket projects those odds at 73%.

If Warsh isn’t confirmed by May 15, Powell’s term as Fed Chair could be temporarily extended.

Stay in Your Lane

It’s rare that a comment from a central banker can bring a smile to my face, but that’s what happened on Monday. Warsh said:

“The Fed must stay in its lane. Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise.”

That's a refreshing outlook. If the Fed chooses to focus on just one thing — inflation — maybe, just maybe, it can get that one thing right.

Learning From the Past

In 2021, both Powell and former Fed Chair Janet Yellen referred to inflation as transitory. Powell and the Federal Open Market Committee kept the key Fed funds rate near zero, even as prices began to climb.

Powell and Yellen were dead wrong. Inflation wasn’t transitory — it was permanent.

By June 2022, the consumer price index soared to a 9.1% annual rate, its highest level in 40 years. The mistake of keeping rates artificially low caused irreparable harm to those who weren’t holding hard assets at the time.

The median sale price of a U.S. home shot from $317,100 in Q2 of 2020 to $442,600 in Q4 of 2022 — an increase of nearly 40% in just 2 1/2 years. While homeowners counted their gains, a younger generation was being priced out of the housing market.

Median Sales Price of Houses Sold for the United States via Federal Reserve Bank of *St. Louis*

Wondering how the increase in housing prices is affecting young people in the U.S.? According to a recent study, they've lost hope, and as a result are adopting negative spending habits. The study is titled, "Giving Up: The Impact of Decreasing Housing Affordability on Consumption, Work Effort, and Investment”

The Bottom Line

Once Warsh is sworn in, it's unlikely that the Fed will repeat the mistakes of recent years. Warsh’s hawkish demeanor will likely lead to clashes with Trump, but the central bank remains independent from the executive branch. This should allow Warsh to stay in his lane and focus on inflation, exactly as he should.

At the time of publication, Ponsi had no positions in any securities mentioned.