Kevin Warsh, President Trump’s choice for next Federal Reserve chair, can’t simply snap his fingers and move interest rates dramatically lower – that much is clear.
But the influence the leader of the Fed can exert over fellow decisionmakers, many of whom look to the chair for direction on rate policy, suggests Warsh may have less trouble convincing members of the Federal Open Market Committee (FOMC) to vote for rate cuts than some analysts believe, according to a top mortgage lawyer.
Marty Green (pictured top), principal at Polunsky Beitel Green, told Mortgage Professional America he doesn’t necessarily subscribe to the view that Warsh, as just one of 12 FOMC members, would be blocked from pushing through cuts by a hawkish majority on the committee.
“I think one of the dynamics about the Fed that’s really interesting is that if you feel strongly as a current governor or one of the committee participants, you certainly are entitled to vote your conscience, and we see people do that with dissents from time to time,” he said.
“But generally, they kind of operate pretty unanimously for the most part and I think that’s partly because there’s a protocol that if you’re on the fence about it or you see possibilities both ways, you have a tendency to vote with the chair. And so I think that’s to some extent where that is going to come into play and be more important – those votes where people could see some case for cutting rates.”
Will Fed members continue to follow the leader under Warsh?
Current Fed chair Jerome Powell, whose term expires in May, has taken a careful approach to rate policy in recent years, frequently drawing Trump’s ire for refusing to consider big reductions.
FOMC members have generally endorsed that approach, with only two – Stephen Miran and Christopher Waller – voting against last week’s decision to hold rates steady instead of cutting by 25 basis points.
Warsh, though, will be expected by Trump to take a more dovish approach and advocate lower rates – and Green sees other Fed decision-makers being receptive to that view.
“If the chair is voting towards cutting rates, [other FOMC members] may follow suit,” he argued, “just because I think they see that as an important element of the Fed – to act as unanimously as possible and so that protocol may be followed.”
That’s not to say they’ll be easily swayed. Much will depend, Green said, on how quickly Warsh is able to establish credibility with other committee members and how strong his argument is that rates could be lower.
Warsh’s time as a member of the Fed’s board of governors between 2006 and 2011 could prove helpful, Green said, giving him more of an understanding of the central bank’s inner workings than some of the outsider candidates who were reportedly in the race to succeed Powell.
And a shift away from Powell may also mean a change in how the Fed judges the economy’s current health and where it’s headed in the coming months.
“I think Warsh may be wanting to look at additional data and bring a fresh perspective of what might provide better guidance for where the economy is going in the future,” Green said. “He’s certainly been critical of how the Fed has done things in the past, which is one of the reasons that I think he was attractive to the president.
“So I do think there will be some change in terms of how they view data, what data they look at, and how much weight they give to it.”
Expect a big push by Warsh to bring other FOMC members on board
Warsh’s first meeting as Fed chair – if he’s confirmed – is scheduled to take place in June. Markets currently see that decision as the likely first rate cut of the year, although Green said it might take longer for Trump’s choice to bring the other FOMC members around to his way of thinking.
“I don’t know that he’ll be able to change their opinion at the first meeting,” he said, “but how he presents the data at the first meeting may actually set the stage for… perhaps doing a cut [later] and maybe doing a more significant one if they delay it.”
CMP
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