By Ann Saphir
April 30 (Reuters) – Kevin Warsh wanted a family fight at the Federal Reserve. It broke out before he arrived.
“Welcome to the new Fed era of dissent,” said Navy Federal Credit Union Chief Economist Heather Long after the Fed on Wednesday announced it would hold its policy rate steady, but also that four of the Fed’s 12 voters dissented. That is the largest number since 1992.
“The war in Iran has made the Fed’s job incredibly complex and there’s a wide range of views of what to do next,” Long said. “For now, the Fed is on hold, but good luck to new Fed Chair Kevin Warsh trying to get agreement going forward.”
The era dawns on the day that Warsh cleared a key hurdle in the Senate on his way to becoming Fed chair on May 15, when Jerome Powell’s eight-year leadership stint ends.
Promising “regime change” at the Fed, Warsh told lawmakers at his confirmation hearing last week that he feels the Fed is too stuck in its set ways and he’d like to shake it up a little.
“I tend to favor messier meetings than some, where people don’t show up with rehearsed scripts,” Warsh said. “If the central bank has that good family fight, I think that they’re going to make better decisions, and if they happen to make mistakes, they’ll correct them sooner.”
At Wednesday’s meeting, Fed policymakers had what Powell called a “vigorous discussion” over whether to change the Fed’s post-meeting statement to signal the central bank’s next move could as easily be a rate hike as a rate cut.
Three of the dissenters – Reserve Bank presidents Beth Hammack of Cleveland, Lorie Logan of Dallas and Neel Kashkari of Minneapolis – wanted that change. There were others around the table, Powell said, who could have supported it as well, given the inflationary pressures from rising oil prices from the Iran war. The fourth dissenter, Fed Governor Stephen Miran, cast what has become his usual vote in favor of easier policy.
In the end, the majority decided to keep the Fed’s current guidance, which clearly suggests that any future adjustment to the policy rate will be in the form of a rate cut.
“A group of us, including me, didn’t feel like we needed to be in a hurry on that,” Powell said in a news conference following the meeting. “But the other side of the argument is a good argument too, as I mentioned. It’s a perfectly good argument to be having, good discussion to be having.”
“I get it though,” he told another reporter later, after noting that the number of the Fed’s 19 voting and non-voting policymakers supporting a change had grown since March. “At certain point you would move and that conceivably could come as soon as the next meeting.”
A shift in the guidance to suggest a rate hike is a possibility could complicate things for the designated new Fed chair.
For one thing, President Donald Trump picked Warsh after souring on Powell, whom he has pressured tirelessly to cut rates. Trump says he expects Warsh to deliver what he wants, though Warsh says he has not promised the president anything.
For another, Warsh is opposed to central bank forward guidance in the first place, whether in the form of giving his own rate-path view or in the form of guidance from policymakers as a group.
“I don’t believe that I should be previewing for you what a future decision might be,” he told lawmakers last week.
Crafting the Fed’s post-meeting statement, however, is not up to the chair alone, but is rather done through consensus and, as Wednesday’s outcome showed, sometimes happens over the objections of the minority.
The fact that there are a range of views within the Fed is only natural, Powell said on Wednesday, especially given the current situation where inflation is already running above the Fed’s 2% goal after last year’s tariff shocks, and it’s unclear how long the current surge in oil prices will last and how that will affect spending, inflation and the economy.
“Every new Fed chair has the same situation, which is you’ve got 18 colleagues on the FOMC, 11 of them vote during a year, and your job is to create consensus, is to talk to them, understand them, you know, be inside their thinking and be able to pull them together and get consensus and move,” said Powell, who got unanimous support at the vast majority of meetings during his tenure. “That’s what every Fed chair has to do. And I think Kevin Warsh … he has the capabilities and skills to be very good at that.”
(Reporting by Ann Saphir; Editing by Andrea Ricci )
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