For diagrams go to discussion.fool.com - Federal reserve powell warsh

Fed Chair Jerome Powell has steered the Federal Reserve through the Covid crisis and the economy to a soft landing. The Fed is often blamed for inflation but the Fed’s monetary stimulus is responsible for asset price inflation (stocks, bonds, real estate, etc.) which few complain about. It was the fiscal stimulus from Congress, not the Fed, that went directly into consumer pockets and caused the CPI to rise.

Powell’s term as Fed Chair ends in two weeks but he plans to remain on the FOMC to complete his term which ends in 2028. Kevin Warsh has been tapped to be the next Fed Chair.

wsj.com - Powell wont leave the fed wont cut warsh will have to deal with both


Powell Won’t Leave. The Fed Won’t Cut. Warsh Will Have to Deal With Both.
A divided committee, external political pressures, and an energy shock—Kevin Warsh inherits a Fed unlike any his predecessors faced

By Nick Timiraos, The Wall Street Journal, April 29, 2026

Jerome Powell announced he will remain on the Federal Reserve board as a governor after stepping down as chair, breaking a 75-year precedent.

Three regional Fed presidents publicly dissented from signaling rate cuts, warning incoming Chair Kevin Warsh of unlikely cuts amid inflation.

Kevin Warsh’s nomination as Fed chair advanced, but he faces a divided committee amid questions over whether the era of the chair-driven Fed is waning.

…
Three regional Fed presidents broke publicly with Powell on the language explaining the decision. The dissent itself was striking: not over the rate action itself but rather because they opposed signaling that a rate cut remains more likely than a rate hike. …

A fourth official, governor Stephen Miran, dissented in the opposite direction, favoring a cut. Miran, a Trump appointee, is set to leave the board because Powell’s decision to stay denies the administration the vacancy it had been counting on. …

The predictability of the chair’s voice did more than hold an institution together or guide markets through individual decisions. It damped the volatility around what the Fed might do next, which in turn helped hold down interest rates. A Fed where that signal is harder to read risks somewhat higher borrowing costs for borrowers, businesses and the government itself…[end quote]

Here’s the latest FOMC meeting summary.

1307.92 KB

Here’s the “dot plot” for the fed funds rate. ZIRP isn’t in the cards at all.

The median long-run real GDP growth forecast is 2.0% and the median long-run fed funds rate forecast is 3.0%.

This will disappoint many market speculators (and also President Trump).

The fed funds rate is a short-term rate. Kevin Warsh is strongly against the Fed’s manipulation of long-term interest rates. The market yield if the Fed stops QE and allows its huge book of bonds to roll off will be higher than it is now.

wsj.com - Why powell is right to stay on at the fed


Why Powell Is Right to Stay On at the Fed
His presence raises the stakes should Trump renew his attacks on the central bank’s independence

By Greg Ip, The Wall Street Journal, April 30, 2026

…

President Trump has waged a year-long campaign to bend the Fed, which is supposed to be independent, to his will…

Central bank independence is not just some academic preoccupation. Setting interest rates free of politics is more likely to keep inflation low and the financial system safe. Still, that independence is one of those fragile components of American democracy that rests on both laws and norms…

There is, of course, the larger question of what Powell’s presence means for interest rates. If he leaves, Trump can fill his seat with his own appointee, providing one more vote to lower rates or potentially take more drastic steps like removing reserve bank presidents. …[end quote]

History shows that political pressure for central banks to cut interest rates inevitably leads to inflation. Powell is doing the right thing by staying at the Fed. But the markets need to recognize that this is a period of potentially radical change.

Wendy