Kevin Warsh sworn in as Federal Reserve chair: 5 big obstacles he faces

(The Hill) — Kevin Warsh will face a political and economic obstacle course upon taking the helm of the Federal Reserve later this week.

President Donald Trump held a swearing-in ceremony on Friday for Warsh, who became chair of the Fed board, taking over the central bank at a pivotal time for the U.S. economy.

After years of raging against outgoing Fed Chair Jerome Powell, Trump made clear before Warsh's nomination that he would only consider candidates he could trust to cut interest rates.

Spiking inflation and divides among Fed officials, however, could make it impossible for Warsh to appease the president while fulfilling his duties as Fed chair.

"Kevin Warsh is about to begin his tenure as Federal Reserve chair with what some believe is a mandate from the president to cut rates," said Joe Brusuelas, chief economist at RSM.

"But the recent rise in market-based breakeven inflation rates strongly implies that Warsh and the [Federal Open Market Committee] will have to prepare for the chance that inflation will continue to rise and that the Fed will have to shift its policy."

Here are the major obstacles Warsh faces upon taking office.

Trump's political pressure

Looming over any shift in the economic or financial sector facing the Fed is Trump's clear insistence that U.S. interest rates should already be lower.

The Fed's refusal to zero out interest rates during most of Trump's first term was the president's primary gripe with Powell, a Republican whom Trump nominated to chair the Fed in 2017.

Despite Trump's previous comments, Warsh insisted that the president did not ask him to commit to cutting rates and pledged to make decisions based on the state of the economy.

Trump also waved off concerns about his potential pressure earlier this week, telling reporters that Warsh would be allowed to "do what he wants to do."

"He's a very talented guy," Trump said. "He's going to be fine. He's going to do a good job."

Trump's latest remarks, however, are out of line with his previous commitments to picking a Fed chief who would slash rates.

When teasing his upcoming Fed chair nomination in December, Trump said his pick would be "someone who believes in lower interest rates, by a lot."

Trump also said in April that he would be disappointed in Warsh if the Fed did not cut interest rates immediately upon his taking office.

"We should have the lowest interest rate in the world," Trump said in an April interview with CNBC.

Iran inflation spike

Trump's desire for lower interest rates is unlikely to be satisfied as the war in Iran pushes prices even higher.

The annual inflation rate surged to 3.8 percent in April, as measured by the Labor Department's consumer price index (CPI), hitting the highest level in three years. Producer prices also rose in April at the fastest rate in nearly three years, deepening concerns about inflation.

Warsh has suggested that much of the Iran-driven inflation surge is from temporary increases in fuel and food costs that would reverse whenever the conflict eases. Top administration officials have also insisted that prices would begin to fall once the Strait of Hormuz is reopened.

But with no end to the conflict in sight, the Fed will likely be forced to hold steady with rates, if not raise them, for the foreseeable future.

"These hotter-than-expected inflation reports leave the incoming chair facing renewed questions around price stability and the timing of any policy easing," wrote Christian Floro, market strategist at Principal Asset Management.

"For investors, the risk is rising that it will be 2027 before they see any further policy easing from the Fed."

Smaller workforce, higher tariffs

Before the Iran war broke out in February, the Fed was attempting to understand how to manage an economy with a much smaller workforce and higher import taxes.

Trump's steep cuts to immigration and increases in deportations helped take more than 600,000 people out of the U.S. labor force over the past year, according to Labor Department data.

Job gains have also fallen sharply since Trump took office in January 2025, with little net increase during his second administration.

The simultaneous declines in job seekers and open jobs helped keep unemployment from surging during the second Trump administration, with just a 0.3 percentage point increase since the start of Trump's latest term.

"The job market, to my eye, has been pretty stable. It might not be good, but it has been stable. And the inflation has not been stable," said Austan Goolsbee, president of the Federal Reserve Bank of Chicago, in a Monday interview on Fox Business Network.

Goolsbee added that inflation appeared to be rising in areas not necessarily connected to the Iran war, complicating the picture even further for Warsh.

"Namely, services inflation is high and rising, and that's probably not coming from oil. It's probably not coming from tariffs," Goolsbee said. "There are going to be a lot of things on the radar screen, and we could use some guidance here from the chair."

Divides among Fed officials

The economy is not the only unprecedentedly complicated challenge Warsh will face Friday.

Warsh is inheriting control of a Federal Open Market Committee (FOMC) that has been unusually polarized over the past two years.

As chair of the FOMC, Warsh is the leader of the Fed's key interest rate-setting panel and wields significant influence over its discussions about the economy. But Warsh is but one of 12 votes on monetary policy, meaning he must be able to drive consensus among other members to achieve his preferred outcomes.

Doing so has been even harder in recent months. The FOMC voted to keep rates steady in May by an 8-4 vote, the first time since 1992 that more than three officials opposed a rate move.

"We doubt that Fed Chair Warsh can deliver President Trump's desired rate cuts if incoming data are not supportive," wrote Steve Englander and John Davies, strategists at Standard Chartered Bank, in a research note.

"He can limit or delay FOMC hikes, though not indefinitely if the data point to rising inflation."

Legal battles

Warsh will also lead the Fed as it faces several legal challenges brought by the Trump administration, including the apparent winding-down of the criminal probe into Powell.

The Fed is also bracing for the Supreme Court's ruling on whether the White House was allowed to fire Fed board member Lisa Cook, a decision with serious implications for Fed independence.