Kevin Warsh has more room to maneuver at the Fed than markets see

Subscribe to enjoy similar stories.Kevin Warsh, who is expected to be confirmed by the Senate later this month as the next Federal Reserve chair, will inherit a central bank that appears to be stuck in policy limbo due to concerns about escalating inflation. But Warsh may have more options than investors think.Bond traders no longer expect the Fed to cut interest rates this year.

Three of the Fed’s regional bank presidents broke ranks at the April 28-29 policy meeting to vote against language that suggested the next rate move would be a cut. And a May inflation report, due early next week, is widely expected to show prices rising at an annual pace near 4%, almost double the Fed’s 2% target.The dominant view on Wall Street is that Warsh will be boxed in: While the Trump administration is pressing for rate cuts, the Fed’s policy committee is heading in the opposite direction.

But that assessment underestimates both the man and the moment.Warsh has a workable path to satisfy both constituencies, and it runs through the middle. If he convinces the Federal Open Market Committee to hold rates steady through the summer, removes the Fed’s current signal that a cut is coming, and waits for more clarification on the impact of energy prices.

he will accomplish three things: satisfy the hawks on his committee, deny the White House an easy target, and preserve the credibility he will need to make larger moves later this year.The three regional Fed presidents who dissented at the central bank’s April meeting—Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas—didn’t vote to raise rates last month. Rather, they voted against the suggestion that the Fed’s next move would be a cut.