Powell's Final Meeting – and the Open Transition to Warsh
The path is now clear for Kevin Warsh to assume the Fed chairmanship. With the political battle behind him, the real challenges are only just beginning.
When Jerome Powell steps before the press on April 29, the interest rate decision will not be the headline – no one expects a change. The real question is: How will the Federal Reserve conduct itself going forward?
Powell's term as Chairman formally expires on May 15. His designated successor, Kevin Warsh, appeared before the Senate Banking Committee on April 21. Senator Thom Tillis, who had initially blocked the confirmation, dropped his opposition over the weekend after the Department of Justice announced it would not pursue further investigations into Powell. The path for Warsh is now clear. But the incoming Fed chair inherits a complicated legacy.
Labor Markets and Inflation: A Shifting Picture
The headline figures on the U.S. labor market project resilience: 178,000 jobs added in March, unemployment holding steady at 4.3 percent. A closer look at the underlying data, however, tells a considerably less reassuring story. Since January 2024, a single sector – health care and social assistance – has accounted for roughly 1.7 million job gains. Every other major industry combined (manufacturing, technology, finance, retail, construction) has shed a net 56,000 positions. The engine behind employment growth is not the private sector; it is government-driven demand through Medicare, Medicaid, and ACA-linked spending programs.
What reads as labor market strength is, in effect, fiscal policy in disguise. The headline numbers obscure a structural fragility already visible in wage data, hiring rates, and declining labor market mobility.
The inflation picture is similarly bifurcated. Headline CPI jumped 0.9 percent month-over-month in March, driven almost entirely by gasoline and energy prices. Core CPI, by contrast, rose a slightly softer-than-expected 0.2 percent, a pace that, if sustained, would push the core PCE deflator back toward 0.26 percent monthly. Base effects from last year's tariff-related price increases are now fading from the year-over-year comparison. The directional trend is encouraging, even if the energy shock is temporarily obscuring it.
Warsh's Tenure Will Not Begin Quietly
More consequential than the personnel change itself is what follows. Should Warsh be confirmed on schedule, he will chair the June 16–17 FOMC meeting, his first as Chairman.
Markets are currently pricing in no rate cuts through year-end. We find that expectation difficult to sustain. With Warsh at the helm, a historically noted advocate for lower short-term rates alongside balance sheet reduction, we see room for two to three cuts, particularly if the labor market softens over the summer and oil finds its way back below the $90 threshold.
Whether Warsh can advance that agenda over the next four weeks will depend less on incoming economic data than on the outcome of a political struggle playing out in Washington. Investors would do well to watch both fronts closely.
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