What Trump's choice of Kevin Warsh for Fed chair may mean for consumers

President Donald Trump said Friday he has chosen Kevin Warsh to succeed Jerome Powell as chair of the Federal Reserve. In keeping with the president's push for lower interest rates, Warsh is expected to be more supportive of cutting the Fed's key benchmark rate later this year, which could have far-reaching consequences for consumers.

"I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best," Trump said Friday in a Truth Social post.

Members of the Fed's board of governors, including the chair, are nominated by the president but must be approved by the Senate. If confirmed, Warsh, a former Fed governor with a Wall Street background, will take over as chair when Powell's term ends in May.

The Fed adjusts its benchmark rate to combat inflation: Raising it makes borrowing more expensive for consumers and businesses, which can cool the economy and, in turn, inflation. Cutting the rate can spur spending and boost the economy, but also fuel higher prices.

Both high interest rates and high prices can hurt consumers, so the Fed's decision whether to raise or lower its rate or hold it steady requires a delicate balance.

The Fed has indicated that its goal of stabilizing prices and maximizing employment is the reason policymakers don't want to ease up too quickly now. After this week's two-day meeting of its Federal Open Market Committee, the Fed kept its benchmark interest rate unchanged.

Warsh has been critical of the central bank's handling of inflation in the past. He told CNBC in July that lowering the fed funds rate by a full point in 2024 when inflation was above the Fed's target, and the Fed's hesitancy to cut rates the following year, undermined its credibility.

"Based on his past statements and actions in his previous stint as a Fed Governor, Warsh was by far the most hawkish of the four final candidates for Fed Chair," said Brett House, an economics professor at Columbia Business School.

Trump has said rates should be sharply lower, and that keeping them elevated puts the U.S. at an economic disadvantage to countries with lower rates.

"There was no person who was going to get this job who wasn't going to be cutting rates in the short term," David Bahnsen, chief investment officer of The Bahnsen Group, said Friday on CNBC's "Squawk Box."

While further Fed rate cuts could alleviate pressure for borrowers, experts say the Fed should not reduce interest rates too soon while inflation is still above target — a mistake the Fed has made in the past.

Consumers waiting for borrowing costs to ease may be better off if the Fed sticks to its current cautious stance, according to Mark Higgins, senior vice president at Index Fund Advisors and author of "Investing in U.S. Financial History: Understanding the Past to Forecast the Future."

"It's too early to judge Kevin Warsh as Fed chair," Higgins said. "What is clear from history, though, is that allowing inflation to persist at elevated levels for too long makes it much harder and far more painful to extinguish later."

In the 1970s, then-President Richard Nixon pressured Fed Chair Arthur Burns to keep interest rates low — and give the economy some gas — in the runup to the 1972 presidential election.

That set the stage for runaway inflation, economists now say. Consumer prices surged in the decade that followed. The inflation rate in 1980 peaked at around 15%, which remains the highest rate since 1947, when the country was still recovering from World War II.

The Fed ultimately, under new leadership, raised interest rates to punishing levels to rein in inflation, leading to surging borrowing costs in the '80s.

"The message to households is uncomfortable but important," Higgins said. "Accepting shorter, more acute economic pain now is preferable to prolonged inflation that continues to erode purchasing power. History is unambiguous on this point."

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