Trump is giving Warsh room to reshape the Fed

When Kevin Warsh steps to the podium Wednesday for his first press conference as chair of the Federal Reserve, he will enjoy something his predecessor Jerome Powell lacked for years: breathing room from the president.

“The president trusts Warsh, so he’ll have some scope of action,” a person familiar with Trump-Fed dynamics said, speaking under condition of anonymity to describe what has been one of the most volatile relationships of this administration.

The new Fed chair will attempt to use that freedom to make his case internally for far-reaching change at the Fed, people who know him and closely follow the Fed said. Warsh’s reform agenda includes moving the Fed slowly toward the lower rates Warsh has endorsed as well as reducing the Fed’s multi-billion-dollar balance sheet and changing how it thinks about inflation. Making that happen will require carefully marshaling the extensive but not unlimited political capital that comes with his new position.

Warsh comes in as the U.S. economy appears resilient, and a tentative deal to end the Iran war may ease inflation worries. While Warsh is unlikely to deliver the immediate interest-rate cut President Donald Trump has demanded, the new chair is already getting a break from a president who took unprecedented steps to undermine the Fed under Powell.

Powell said repeatedly that he and the Federal Open Market Committee based their interest-rate decisions solely on economic factors, but Trump was convinced otherwise. He saw politics everywhere.

The markets overwhelmingly anticipate Warsh will this week announce that the Fed is holding interest rates steady, just as Powell has done since December. Trump won’t see that as a betrayal, the person said. “I think having the trust of the president is worth a lot of room because the president thinks you’re acting out of your best judgment and not a vendetta against him,” the person said.

Trump has said in recent days he wants Warsh to “do whatever he wants” and “be totally independent.” The Fed is independent by statute and reports to Congress, not the president.

Warsh said at his April confirmation hearing he’s willing to hear from the president or anyone else on interest rates, but that the final call is up to the Fed. “Humble central bankers should be listening and then making their own decisions,” Warsh said.

The White House didn’t respond to a request for comment about the Trump-Warsh relationship. The Fed declined to comment on Warsh’s plans for the meeting and his relationship with the president.

How long that relationship holds up is a matter of intense speculation in Washington. Trump has a long history of turning on his political allies.

Warsh will need to quickly shore up his…