Commerzbank economists Bernd Weidensteiner and Christoph Balz analyzed the possible implications of Kevin Warsh’s appointment as Federal Reserve Chair for US monetary policy. They noted that Warsh has criticized recent Fed policy and is optimistic about AI-driven disinflation, but the economists themselves are skeptical that AI will significantly lower inflation in the near term [1].
The report raises concerns that Warsh’s leadership could threaten the Fed’s independence, especially regarding potential pressure from former President Trump for rapid interest rate cuts. Commerzbank warns that, under Warsh, the central bank might cut rates more aggressively than appropriate over time, but they still expect the next Fed move only toward the end of the year [1].
The economists highlight that inflation has picked up again following the war against Iran, which is likely to delay the return of the inflation rate to the Fed’s 2% target. They argue that even if Warsh were to become chair soon, it is not certain the Fed would comply with Trump’s demands for immediate rate cuts. Warsh would also face challenges in securing a majority for a rate cut at his first meeting in June, and if rates remain unchanged, he could quickly come under presidential scrutiny, facing similar difficulties as Powell did previously [1].
Commerzbank maintains its forecast that the Fed will likely not deliver its next interest rate move until toward the end of the year, as Warsh would need time to establish his position within the central bank [1].
CONCLUSION
Commerzbank sees significant challenges ahead if Kevin Warsh becomes Fed Chair, including risks to Fed independence and delayed rate cuts due to persistent inflation. The bank expects no immediate change in monetary policy, projecting the next rate move toward year-end.