Most Fed officials see no compelling reason to cut interest rates, given that inflation is still elevated and the labor market appears stable. The biggest increase in oil prices in four years, fueled by renewed conflict in the Middle East, may only increase their appetite.
Many policymakers have also expressed skepticism about Warsh’s vision for lower rates, which focuses on the technology revolution delivering a low-inflation economic boom, and his pledge to shrink the Fed’s balance sheet.
All this is happening even before Warsh has been officially nominated, and while his confirmation in the Senate faces opposition from Republicans angered by the Justice Department’s investigation into current Fed chief Jerome Powell, whose term as chairman ends in May.
Even if it is resolved, the dynamic suggests that Warsh could face stiff resistance if he pushes for quick, immediate cuts to create a potential flashpoint with the White House. It could also mean that Warsh will struggle to fulfill a key part of the Fed chairman’s job: advancing the economic argument that motivates colleagues and builds consensus among them.
“If Warsh wanted to have a series of cuts — four rate cuts in the second half of the year or something like that — unless we were surprised by the data, I don’t think he would have the votes for that,” said William English, a Yale School of Management professor and former Fed director. “The view is one where it would not be appropriate policy.”
Warsh, contacted through the Hoover Institution where he is a visiting fellow, did not respond to a request for comment. ‘Show Me Stage’
After cutting rates at three consecutive meetings until the end of 2025, Fed policymakers held firm in January, worried about developments in the labor market and sticky inflation that finished nearly a percentage point below their 2% target last year.
Bolstered by January’s better-than-expected jobs report, many policymakers confirmed the view that the labor market is stabilizing. A few, such as Cleveland Fed President Beth Hammock – a key voter in this year’s rate decisions – said they expected rates to remain “for some time.” Even Gov. Christopher Waller, who called for a quarter-point cut in January, acknowledged the possibility that an improving labor market might warrant another shutdown when officials meet March 17-18.
Many officials also considered the possibility that the Fed may need to raise rates if inflation remains above target, according to minutes of the January meeting. The Fed may find itself in a position later this year where inflation is slowing and the labor market is holding steady, paving the way for “good news” cuts on the hourly rate, said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. But for now, she added, officials are in the “show me phase,” waiting for inflation to improve.
Doubt of AI
While most data do not point to a recession, Warsh indicated that larger, structural changes in the U.S. economy could justify lowering rates. Referring to the rise of artificial intelligence, Warsh drew a parallel to the Internet boom of the 1990s, a period that saw a surge in productivity that for a time helped keep inflation and prices at bay. Productivity gains are critical because labor costs are the largest expense for most businesses. So when companies can use technology and equipment to increase productivity, it drives economic growth without creating wage-driven inflation.
“AI will be a significant inflationary force, boosting productivity and strengthening America’s competitiveness,” Warsh wrote in a Wall Street Journal opinion piece in November. And recently, labor productivity has really risen. Over 50 years, the annual growth rate for nonfarm worker productivity per hour per quarter averaged 1.9%. Over the past 10 quarters, it averaged 2.7% and in the third quarter of 2025 it reached 4.9%, according to the Bureau of Labor Statistics.
But in the weeks since Trump announced Warsh as his Fed pick, many Fed officials have expressed that they are not convinced the economy is facing the same conditions that allowed then-Fed Chairman Alan Greenspan to overheat the economy in the 1990s.
The skepticism is this: It’s too early to know if AI will drive the current pace in manufacturing, and even if it does, the sheer scale of AI investment may mean that interest rates should be higher, at least in the near term. Alternative ideas behind the productivity jump include investing in more labor-saving technology and creating new businesses.
“I don’t think I’m alone in this, but the growth and productivity that we’ve seen in the last year or two is not from AI,” Waller, who was in contention for the Fed’s top job until Warsh’s selection, said in a Feb. 23 panel discussion. “I don’t think any of us believe it’s a big driver.”
Balance sheet pushback
Another pillar of Warsh’s view, which is that shrinking the Fed’s $6.6 trillion balance sheet could create room for reductions, has also not gained traction among policymakers or Wall Street. The Fed’s holdings of securities ballooned in part because officials judged more stimulus was needed when the central bank’s benchmark rate hit zero during the global financial crisis and pandemic.
