Kevin Warsh was confirmed Fed chair Wednesday by a 54-45 Senate vote, with Sen. John Fetterman the lone Democratic yes and Sen. Thom Tillis joining all other Republicans after the DOJ dropped its Powell probe in late April. [1] Warsh's four-year term begins Friday, May 15. Jerome Powell, whose chairmanship ends that day, will remain on the Board of Governors until at least 2028 — the first outgoing chair in more than 75 years to stay on as a rank-and-file member. [2]

The macro starting position is uncomfortable. April CPI printed 3.8 percent year-over-year — the highest since 2023 — and Brent crude carries an Iran-war premium that holds independent of any headline trading. April producer prices jumped 6 percent, the fastest pace since December 2022. [3] The 3.5 to 3.75 percent FOMC policy rate target Warsh inherits sits below the headline CPI for the first time in his term, which means the real policy rate is now negative on a headline basis. The companion major in this edition uses the word "stagflation" because that is the word RSM, Bloomberg Economics and Principal Asset Management used this week.

The structural changes Warsh has telegraphed are large. CNN's reporting describes him as having "proposed or hinted at" reducing the Fed's $6.7 trillion balance sheet, coordinating more closely with Treasury on the balance sheet, and reducing the number of FOMC meetings from eight to as few as four per year. [4] Each of those changes — particularly the FOMC frequency — touches the institutional independence question the Powell-probe drop did not resolve. The cudgel against the previous chair has been put away. The cudgels available to the new one are inside Fed governance itself.

Warsh said in his confirmation hearing he would be "an independent actor." [5] The first FOMC under him is the next test. The rate-cut path Trump has pressed for runs against an inflation print that has accelerated. The independence test runs against a balance-sheet structure Warsh has said he wants to change. Both clocks start Friday.

-- THEO KAPLAN, San Francisco