Trump and Warsh now linked by the fate of the American economy

Le président américain Donald Trump now plays a significant part of its political future on the performance of the new Federal Reserve chairman, Kevin Warsh, in a context marked by internal divisions at the central bank and persistent inflation.

Former Fed governor and close to conservative circles, Kevin Warsh officially took the helm of the American monetary institution last week during a ceremony at the White House alongside Donald Trump.

For years, Trump had regularly made former Fed chairman Jerome Powell a scapegoat, accusing him of being responsible for high interest rates, the economic slowdown, and the cost of mortgages. Now, the results of monetary policy will be directly linked to his own choices.

The situation looks delicate for Warsh. The Federal Reserve remains deeply divided on the path of interest rates, with the April meeting having seen the greatest number of disagreements among governors in three decades.

Inflation also remains a major problem for the Trump administration. The persistent rise in prices contradicts several economic promises made by the American president, who during his campaign pledged a rapid decrease in the cost of living and a return to strong growth.

Analysts say Trump will no longer be able to blame economic difficulties on hostile Fed leadership, since Warsh is now considered a political and ideological ally of the president.

This close relationship could, however, pose a risk to the perceived independence of the US central bank. Several economists fear that financial markets will interpret future Fed decisions as being influenced by political rather than economic considerations.

Kevin Warsh will notably have to convince that he can maintain the credibility of the institution while managing pressures from the White House, as investors closely monitor developments in inflation, employment and interest rates.