On March 4, US President Donald Trump nominated Mr. Kevin Warsh as the next Chairman of the US Federal Reserve (Fed), according to a White House announcement. This move helps President Trump take another step towards bringing a Fed leader supporting interest rate cuts to power.
However, the path for Mr. Warsh - who was formerly the Fed Governor - to return to this agency is still full of obstacles. Even if he is approved as Fed Chairman, implementing the interest rate cuts as Mr. Trump wishes will not be easy.
According to the White House announcement, Mr. Warsh will replace Mr. Jerome Powell after Mr. Powell's leadership term ends on May 15, and also assume the position currently held by Fed Governor Stephen Miran.
Mr. Trump - who often criticized Mr. Powell for not lowering interest rates quickly or strongly - once said that supporting a reduction in borrowing costs would be a condition for any candidate for the Fed Chairman position. Mr. Warsh believes that productivity growth thanks to artificial intelligence can create room to lower interest rates without causing inflation.
The Senate Banking Committee, controlled by the Republican Party, is expected to hold an accreditation hearing and Republican senators in this committee said they assess Mr. Warsh as capable and a suitable choice.
However, a Republican member of the Committee - Senator Thom Tillis - announced that he would block all nominations to the Fed as long as the US Department of Justice's investigation into Mr. Powell's testimony to the Committee last summer about renovating the Fed headquarters in Washington remains open.
Mr. Tillis believes that this investigation is unfounded and a threat to the political independence of the Fed - a factor considered key to controlling inflation and managing a stable economy. Without Mr. Tillis's vote, the fragile Republican majority in the committee would not be enough to overcome the unanimous opposition from the Democratic Party.
Even if he overcomes the Senate ratification barrier, Mr. Warsh may face a major challenge in persuading his colleagues to support interest rate cuts as Mr. Trump wishes.
The reason is that recent economic data shows that the US labor market is stable and inflation is still higher than the target, while there are still many doubts about whether artificial intelligence can quickly promote growth without creating inflationary pressure.
Many Fed policymakers said they wanted to wait for inflation to cool down before continuing to cut interest rates.
The new conflict broke out in Iran, causing oil prices to rise sharply, also raising further questions about when inflation may cool down. Financial markets are currently betting that the Fed will not cut interest rates until at least July.
