Economics Update February 2026 - Warsh's nomination delays the end of the independent Federal Reserve

US President Donald Trump wants an American central bank that supports his desired course and significantly lowers interest rates. If the Federal Reserve (Fed) were to fall in line with this, its independence would effectively be over. This would mean the loss of a key factor in the economic success of the US over the past decades. Markets and observers have therefore been closely following the conflict between Trump and the current Fed Chairman Jerome Powell for months.

With the nomination of Kevin Warsh as Jerome Powell's successor at the helm of the Fed, the president has now sent a clear signal that he has no interest in continuing this dispute for the time being. Warsh is likely to be more open to possible interest rate cuts than his predecessor, but he is not a proven dove. As a former central bank governor, his fundamental professional competence is beyond question.

It is also interesting to take a look at the composition of the Federal Open Market Committee, the Fed's central decision-making body: after all, the chairman does not make monetary policy decisions alone, but together with his eleven colleagues on the Federal Open Market Committee, where he has only one vote, like everyone else. Four members of this committee are rotating presidents of regional Fed districts. Three of the new members – Beth Hammack (Cleveland), Lorie Logan (Dallas), and Neel Kashkari (Minneapolis) – are considered more hawkish on monetary policy than their predecessors. The fourth, Anna Paulson (Philadelphia), is similarly dovish to her predecessor. Compared to last year, the Fed's current decision-making body is therefore less inclined to follow Trump's wishes. 

Trump can exert influence through new appointments to the board, as he did with the appointment of Stephen Miran. The fact that Miran, who reliably advocated for larger interest rate cuts than his colleagues, now has to make way for Warsh shows Trump's limited room for maneuver on this issue. This had already become clear recently when the Supreme Court expressed doubts about the legality of Trump's attempt to dismiss Lisa Cook. Aligning the Fed's decision-making body with Trump's agenda is therefore not a quick and easy task. It is more like a marathon – and Trump has not been particularly successful in this discipline so far. 

There is another point that is likely to have played a significant role in Warsh's nomination: if the independence of the Fed is seriously called into question, there is a risk of massive financial market turmoil. A further drastic decline in the US dollar and a significant rise in long-term interest rates would be particularly likely. The latter was already the factor that prompted Trump to back down on tariff policy in April 2025. In the run-up to the midterm elections, the Trump administration wants to avoid a repeat of this scenario.

This does not mean that the Fed's independence is secure in the long term. On the contrary, attempts to undermine its independence will continue in the medium to long term, and professional investors should therefore keep a close eye on this development. However, it is not the most likely scenario that independence will be undermined in the short term and on a lasting basis.