The cost of a Fed that bends

Bloomberg's profile of Jerome Powell reads less like a retrospective and more like a reminder of what the job – Chair of the Federal Reserve – is supposed to be. Independence, evidence-based thinking, and steadfastness. That is the standard Powell set, and yet given the unfortunate timing of Warsh's potential ascension, such standards may be at risk.

I'll reiterate: the Fed, particularly under the forces of the current administration, has been a bastion of independence – a pillar that hasn't bowed to pressures or lobbying from the Government or its senior officials.

Even amid a pandemic, a bull market, oil market shocks, and beyond, Powell faced open criticism from senior politicians, calls for rate movements at moments that did not justify them, and a constant sense that the Fed could be pulled deeper into a vicious political cycle.

Yet, he didn't bend.

A change at an unfortunate time

Now more than ever, as the global economy faces unprecedented volatility, this strength in leadership cannot subside. Admittedly, a change in personnel at the Fed has really come at an unfortunate time – after all, it is the known, reliable resolve of a Chair like Powell that is now necessary to cool markets and maintain consumer and investor sentiment in the economy, as volatility becomes the new norm.

Of course, the likely transition to Kevin Warsh comes as such uncertainty continues to build. Inflation – yet at its peak – is steadily climbing, central banks are weighing up a renewed hawkishness, bond markets remain unsteady, and budget deficits are ballooning. This is not a forgiving backdrop, and unfortunately, Warsh's challenges are not just economic.

He steps into a role where the expectation, set by Powell, is that the Fed does not bow to pressure – and yet he's taking over when that pressure is at an all-time high. Political voices are getting louder and more capricious, geopolitical tensions are escalating, and the midterm elections are soon looming, where I'm sure the administration will look to make good on promises to "deliver" rate cuts for its electorate. In short, his new 'green' position may be quickly tested.

Warsh's mixed signals on rates

Then, indeed, there's the question of his own position. His past suggests a dovish preference for lower rates, yet his recent comments have also pointed to perhaps a more 'Powellist' approach – that is, assurance that he wouldn't cut rates as enthusiastically as expected.

And it's this ambiguity that risks causing damage.

When uncertainty itself becomes the risk

Of course, much ink has been spilt about the economic implications if Warsh buckles to political pressure – including from my own pen. However, one of the greatest risks – evident from Warsh's nomination process thus far – is the correlation between uncertainty and destabilization. Not only can uncertainty around Warsh, his governance, and his monetary policymaking destabilize markets, but it may just destabilize the US economy as a whole.

We are set to enter an era of high politics, and whether they know it or not, Americans need to have surety that – come hell or high water – their economic helmsman will stave off political intrusion, will carve out a safe path for the US, and will maintain the independence that defines its current Federal Reserve.

What Warsh needs to say now

Jerome Powell spent his tenure pushing the Fed away from political interference, upholding a clear, defined stance on policy and prioritizing the institution's independence. The question is, will Warsh keep up this good work?

As Americans, what we all need to hear now is clarity around Warsh's philosophy and an emphatic commitment that he will not succumb to external pressures. He certainly has the resume to succeed in the seat – but he must now take hold of the narrative.