The Economy That Kevin Warsh, the Federal Reserve’s New Chair, Is Inheriting
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[0–><!–>As Fed chair, a role he will soon assume, Mr. Warsh will need to navigate a delicate economic moment, a president who demands lower interest rates and an increasingly divided leadership committee — one whose members will now include Jerome H. Powell, the departing Fed chair.–><!–>
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[0–><!–>The Justice Department investigated Mr. Powell and the Fed over renovations to its headquarters, a move that was largely viewed as a pretense to exert pressure. Last month, the department dropped the inquiry but said it could reopen it at any point.–><!–>
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[0–><!–>President Trump is also trying to oust Lisa D. Cook, a Biden-appointed governor. Whether he has standing to do so is now before the Supreme Court.–><!–>
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[0–><!–>A key question for Mr. Warsh as his tenure as chair begins is whether he will do Mr. Trump’s bidding as the president’s nominee — something that Mr. Warsh has repeatedly denied.–><!–>
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[0–><!–>Mr. Powell, who also faced inflation challenges as chair, often referenced the Volcker era. During the Covid recovery period, inflation rose to its highest level in decades. After mistakenly arguing at first that higher prices were likely to be “transitory” and that raising interest rates wasn’t necessary, Mr. Powell and his colleagues were forced to change course. They raised interest rates from near-zero in 2022 to as high as 5.5 percent by July 2023.–><!–>
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[0–><!–>Alan Greenspan, then the Fed chair, resisted the call to raise rates during a time when many feared the economy was running too hot. He argued that the United States was experiencing a productivity boom, meaning that strong growth was unlikely to be coupled with inflation, a hunch that turned out to be correct.–><!–>
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[0–><!–>Mr. Warsh, who was then a Fed governor, was initially supportive of the effort. But he soured on the policy, arguing that the Fed was distorting financial markets. He resigned in protest in 2011.–><!–>
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[0–><!–>Reducing the more than $6 trillion of assets on the Fed’s balance sheet is now a priority for Mr. Warsh. But there are internal disagreements over whether or how to do it.–><!–>
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[0–><!–>A rate decision requires agreement from a majority of the 12 voting members on the Fed’s rate-setting committee, which consists of all seven board governors, and a rotating set of five presidents of the Federal Reserve’s regional banks. Presidents have historically broken ranks more often than governors, whose objections have been rare. Mr. Powell’s tenure featured dissents by both, and in opposite directions.–><!–>
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