Trump will personally preside over the swearing-in ceremony for the new Federal Reserve Chairman, Warsh, an arrangement that breaks with recent practice and once again brings the 70-year power struggle between the White House and the Federal Reserve into the spotlight. History shows that every Federal Reserve chairman seeks a balance between political pressure and policy independence, and Warsh is no exception—but the situation he faces is far more complex than outsiders imagine.
According to the Wall Street Journal, citing White House officials,Trump will personally preside over Walsh's swearing-in ceremony at the White House this Friday.This move breaks with recent practice—inaugurations are usually held inside the Federal Reserve, with the president rarely in attendance. The last time a Federal Reserve chairman was sworn in at the White House was nearly forty years ago, when Alan Greenspan took office in 1987.
In their latest research report, the fixed income team at Caitong Securities (Sun Binbin, Sui Xiuping, and Lu Xingchen) pointed out that...Although Warsh is not a "dovish chairman," it is not certain that there will be no rate cuts this year—the relationship between the Fed chairman and the US president is not static, but changes over time.
However, Warsh did not inherit a fully prepared Federal Reserve. At the FOMC meeting at the end of April, three governors—Hammack of Cleveland, Kashkari of Minneapolis, and Logan of Dallas—cast the most unusual dissenting vote since October 1992—they opposed not just rate cuts themselves, but argued that there shouldn't even be any hint of rate cuts. This meant that Warsh inherited a central bank with internal cracks, and Trump's expectation of him was precisely rate cuts.
The White House Inauguration Ceremony: An Arrangement Full of Political Signals
The very arrangement of this inauguration ceremony sends a strong signal. When Powell was inaugurated in 2018, the ceremony was held inside the Federal Reserve, and Trump himself did not attend;The most recent sitting president to attend an inauguration in person was George W. Bush, who attended Ben Bernanke's swearing-in ceremony in 2006.Trump's personal involvement in the event directly demonstrates his close attention to the appointment of the Federal Reserve officials.
At the procedural level, the transition process has been unusually lengthy. Warsh was confirmed by the Senate last week for a four-year term; Powell's term as chairman expired last weekend, but he indicated he would remain on the Federal Reserve Board as a governor, a position that will run until January 2028. Warsh had previously agreed to divest some of his personal investments before officially assuming office, which has further delayed the transition. During the transition period, Federal Reserve Vice Chairman Philip Jefferson represented the central bank at the G7 finance ministers and central bank governors meeting in Paris this Monday.
70 Years of Game Theory: From Martin to Powell
Caitong Securities' report system has systematically reviewed the history of the relationship between successive Federal Reserve chairmen and presidents since 1960, outlining a clear evolutionary trajectory.
- William MartinWhen institutional safeguards are lacking, independence can only be maintained through personal credibility. Upon taking office, he refused to act as an agent of the Treasury Department, pushed the Federal Reserve's decision-making center to shift from New York to Washington, and extended decision-making power to the entire FOMC.When Truman saw him on the streets of New York, he simply said "Traitor" and walked away.
- Arthur BurnsBurns' failure stemmed from his own disbelief that monetary policy could end inflation, which opened the door for Nixon's political pressure. Nixon exerted pressure through private letters, interfered in the composition of the Board of Governors, and even sent senior advisors to directly reprimand Federal Reserve staff. Burns formally preserved institutional independence, but made significant compromises on substantive policy directions, ultimately destroying the credibility of the Federal Reserve.
- William MillerIt was the most direct model of political coordination—deliberately chosen to align with Carter's political goals, only to backfire in the face of external crises. In the summer of 1979, inflation had become Carter's biggest political crisis, and Miller was transferred to the position of Treasury Secretary, making way for a true inflation hawk.
- Paul Volcker upgraded independence from "personal reputation protection" to a triple moat of "personal reputation + institutional framework + market reputation".Carter knew that appointing Volcker would come at a political cost, yet he still made the choice—as his policy advisor Eisenstaedt put it, this "ultimately squeezed out inflation at the cost of high unemployment, and also squeezed him out of a second term." Although Reagan issued an "order" to Volcker before the 1984 election not to raise interest rates, and launched an "FOMC ambush" in 1986 through appointed governors, neither of these actions could substantially change the policy direction.
- Alan GreenspanHe used technocratic rhetoric to keep the power struggles under wraps, clashed fiercely with George H.W. Bush, reached a "Washington-style peace" with Clinton, but overstepped his bounds to support tax cuts during George W. Bush's presidency, becoming the first Federal Reserve chairman in history to proactively "invade" the field of fiscal policy.
- Ben BernankeThis reflects the natural convergence of the White House and the Federal Reserve in a crisis situation, with the main pressure coming from Congress and within the Fed itself, rather than the White House. Janet Yellen responded to Trump's attacks with "apolitical language and strict self-restraint," becoming the first Fed chair to be replaced by a new president since Carter did not renew Burns's term.
- Jerome PowellThe presidential pressure he faced was the most severe since Burns. During Trump's first term, under the combined influence of external political pressure and internal economic assessments, Powell cut interest rates three times in 2019 and halted balance sheet reduction. In his second term, facing Trump's investigation into cost overruns at the Fed's Washington headquarters renovation project and his hints at dismissal, Powell's response was significantly more forceful, elevating the Fed's independence to a new historical level of legal, written, and public defense. In his last meeting as chairman, the FOMC maintained interest rates by a rare 8-4 split.
Walsh's Dilemma: The New Chairman Beset by Internal and External Challenges
The situation Walsh took over was quite rare in history—he faced pressure from the White House to cut interest rates, as well as resistance from hawks within the FOMC.
Warsh was not a traditional dove. Appointed to the Federal Reserve Board of Governors by George W. Bush in 2006 at the age of 35, he was one of the youngest governors in the Fed's history. After the official launch of QE2 in 2010, he became the only FOMC governor to publicly question the direction of expansion, and resigned early in 2011, widely interpreted by the market as a silent protest against the Fed's excessive easing. His background at Morgan Stanley, as executive secretary of the White House NEC, and his close ties with the core Republican Party circles meant that his policy independence was expected to be no less than that of previous chairmen with similar backgrounds.
Caitong Securities' report summarized four key points from Walsh's recent speeches and Q&A sessions:
First, his definition of the Fed's independence is more refined than that of his predecessors. He believes that politicians' comments on monetary policy do not affect the Fed's independence. This is both a way of desensitizing Trump's pressure and leaving room for maintaining policy independence in the future without public conflict.
Secondly, he holds a negative view on forward guidance, and the market may need to adapt to a more "silent" Federal Reserve;
Third, he attached great importance to the issue of inflation and directly denied Trump's view that the rise in oil prices was "false inflation";
Fourth, he believes that the productivity gains brought about by artificial intelligence will make interest rate cuts possible, which has a similar logical structure to Greenspan's insight into the productivity boom in the late 1990s.
Interest rate cuts and balance sheet reduction: The direction is clear, but the pace is cautious.
Caitong Securities believes that the monetary policy after Warsh takes office will most likely be characterized by "a definite direction but a cautious pace".
Regarding the pace of interest rate cuts, inflation has been above the target for five consecutive years, making stabilizing inflation expectations a higher priority. Warsh's emphasis on inflation, especially his denial of the "false inflation" theory, indicates that he will not easily cut interest rates before inflation has clearly fallen back to the target range. In the short term, demand growth from data center investment may further offset the room for interest rate cuts, causing the pace of rate cuts to be constrained by data and slow down. The report points out that if Trump gives Warsh more respect, interest rate cuts may come sooner; if Trump continues to exert strong pressure, Warsh will tend to delay rate cuts in order to defend the independence of the Federal Reserve.
Regarding the pace of balance sheet reduction, Warsh believes that the expanding balance sheet has effectively extended the boundaries of the Federal Reserve's monetary policy into the fiscal domain, making balance sheet reduction logically necessary. However, he also acknowledges that it took the Federal Reserve 18 years to accumulate its balance sheet to this size, and reduction will not be achieved overnight; it is expected to proceed slowly and methodically. Furthermore, initiating balance sheet reduction without interest rate cuts can almost be seen as actively provoking conflict with the White House—which also determines that the pace of balance sheet reduction will be accelerated to avoid direct confrontation before the start of the interest rate cut cycle.
Caitong Securities' core conclusion is that replicating Greenspan-style management and returning to a scarce reserve model first requires winning support within the Federal Reserve; rushing into it will only backfire. Assessing Warsh's future policy path should not solely rely on his personal stance or current relationship with the White House, but should return to macroeconomic trends—the level of inflation, the elasticity of growth, the direction of oil prices, and the tightness or looseness of financial conditions—to deduce his most likely choices under different circumstances.
