With Kevin Warsh replacing Jerome Powell as chair of the US Federal Reserve (Fed), Investor Daily looks back at the outgoing chief’s legacy and what lies ahead under new leadership.
After the US Senate this week confirmed Warsh as the new Fed chair, replacing Powell, he assumed the position as of 14 May US time.
It marks the end of Powell’s eight-year tenure, during which he served two four-year terms as Fed chair, from 2018 to 2022 and again from 2022 to 2026.
The 54-55 Senate vote on 13 May, predominantly split along party lines, was the most divisive confirmation vote for the position in history. Warsh was confirmed for a four-year term as chair as well as a 14-year appointment on the Fed’s rate-setting board.
Warsh assumes leadership of the Fed at a fraught moment, with the central bank under intense pressure from the Trump administration to cut rates despite rising inflation and the ongoing Iran war.
At its April meeting, Powell’s last as Federal Reserve chair, the Federal Open Market Committee (FOMC) left the target range for the federal funds rate unchanged at 3.50 per cent to 3.75 per cent for the third consecutive time. The meeting was similarly very divisive, with the FOMC split along 8-4 lines – the highest level of dissent since October 1992.
It also comes as the Bureau of Labor Statistics reported last week that US inflation increased to 3.8 per cent in April, the highest jump since 2023.
Ongoing conflict
Debate over the Fed’s rate path has put Powell and Warsh on opposite sides of the Trump-era narrative for some time, with Warsh viewed as more closely aligned with Trump and Powell favouring a more cautious approach.
Tension between the three men dates back nearly a decade, when Trump appointed Powell to his first-term role as Fed chair in 2018 — a decision he has since called a “really big mistake”. Powell was re-nominated to the role by the Biden administration in November 2021.
Back in 2018, Warsh had also reportedly been among the candidates interviewed for the top job.
This January, amid ongoing White House pressure to cut interest rates, tensions between Trump and Powell escalated further when the US Attorney’s Office opened a criminal investigation into Powell.
The testimony concerned, in part, the Fed’s renovation of its historic Washington headquarters and allegations Powell may have misled Congress about the scope of the project.
Warsh asserted at the time that the threat was tied to his policy stance, and the investigation was ultimately dropped in April. The decision came weeks after a prosecutor handling the case conceded at a court hearing that the government hadn’t found any evidence of a crime.
In response to what he sees as broader White House pressure on the Fed over interest rates, Powell announced last month that he would remain on the Fed’s board after he steps down as chair.
Powell’s legacy and the road ahead
Franklin Templeton fixed income senior client portfolio manager Richard Rauch said Powell’s lasting legacy will be his “strong desire and fight” for Fed independence.
“One measure of his success on that front would be market implied views of longer term inflation which have been remarkably well behaved even during periods like 2022 and more recently with the energy price shock. That shows that markets believe the Fed has credibility as an inflation fighter over the long term,” Rauch told Investor Daily.
However, he said Powell’s performance was far from flawless, with the jury still out given US headline inflation has remained above target for much of his tenure. Rauch also pointed to the outgoing chair’s infamous “transitory” call as a “big miss” for which he will be remembered.
In late 2021, Powell used the term “transitory” to describe inflation, drawing widespread criticism. He also revived the term in early 2025 regarding tariff-driven price increases.
Atchison principal Kev Toohey also pointed to the “transitory” call as a notable part of Powell’s legacy, though he said Powell leaves the Fed in “better shape than many expected”.
“The ‘transitory’ call was a serious mistake that damaged credibility. But he tightened hard when it mattered, held firm under real political pressure, and got the job done. That is worth acknowledging,” Toohey told Investor Daily.
Assessing Powell’s tenure, Betashares chief economist David Bassanese described him as a “competent” chair who steered the economy through a range of challenges, while also pointing to the COVID era as a key test of his leadership.
“Obviously everyone was surprised by the post-COVID surge in inflation. I don’t think he was alone in not anticipating the magnitude of the rise in inflation through 2022.
“If that’s a blemish, and he did subsequently raise rates and help bring inflation down without tipping the US economy into a recession, I think he’s done a pretty good job,” Bassanese said.
The road ahead
Looking forward, Bassanese said Warsh’s first challenge will be to convince markets of his independence, amid widespread perceptions that he is closely aligned with Trump.
He added that while markets broadly see Warsh as dovish, persistent inflation could prompt a shift toward a more hawkish stance in the US later in the year.
“There’s potentially a big baptism by fire ahead of him if US inflation keeps rising.”
At his Senate confirmation hearing, Warsh signalled a more patient approach to additional rate cuts. By contrast, Bassanese pointed to Fed Governor Stephen Miran, who has pushed for lower rates and opposed the FOMC’s three quarter-point cuts approved in 2025, as a cautionary example for Warsh.
Toohey concluded that Warsh steps in at a “genuinely difficult moment”.
“Inflation is not beaten, a second round of price pressure is coming through the energy shock, and the rate cuts markets were banking on at the start of the year are off the table. How he communicates in the first few months will set the tone.
“For Australian investors, the concern is a Fed that moves hawkish and sends the US dollar higher, which squeezes the rate differential and gives the RBA even less room than it already has.”
