Washington: What to Watch Now

Intrigue at the central bank will now turn to whether Powell will stay on the Fed board, since his term as a regular Fed governor does not expire until 2028. Doing so would be unusual but not unprecedented. It happened in 1948 when Marriner S. Eccles resigned from his chairmanship after his term ended but remained a member of the Board of Governors until 1951.

Four takeaways from Kevin Warsh's confirmation hearing

1. Warsh says he won't be a "sock puppet." Fed independence was a major focus of the hearing because of the president's relentless criticism of Powell for not cutting rates more dramatically. But Warsh reiterated his commitment to the central bank's independence. He said President Trump "never asked me to predetermine, commit, fix, decide on any interest rate decision in any of our discussions, nor would I do so." Democrats were skeptical, with the sock puppet reference coming up several times. Trump did not help things by saying on CNBC just hours before the hearing that he would be "disappointed" if Warsh does not lower rates after his confirmation. Warsh, of course, does not have unilateral authority to cut rates—there are 12 voting members of the Federal Open Markets Committee (FOMC), the body that sets the baseline interest rate.
2. Warsh is likely to push for changes to how the Fed communicates. Warsh argued that Fed officials talk too much. He did not commit to holding a press conference after every FOMC meeting, as Powell has done. He also said that he did not believe the Fed's forward guidance, in which each member of the FOMC provides his or her outlook for where interest rates will go in the future (known as the "dot plot") was a useful tool. And he did not even commit to holding eight FOMC meetings a year, as has been the Fed's practice since 1981. (The law only requires four meetings a year.) Warsh was clear that he will implement different communications policies. Whether other Fed board members—and the markets—will approve of those changes is a different question.
3. He said he wants the Fed's debates about policy to be "messier." Warsh said that Fed members box themselves into positions by sharing their outlooks publicly in the run-up to FOMC meetings. He wants the debates behind closed doors to be more like a "good family fight." Historically, the FOMC has sought to present unanimous votes on monetary policy decisions, even when there were disagreements in the meetings. But in recent years, dissenting votes have become more common and Warsh implied that he did not think dissents were a problem.
4. Warsh wants a new "framework" for how the Fed thinks about inflation. He said that the Fed's long-time preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, is inadequate and that he wants a better measure to identify "underlying" inflation trends. He said one of his first priorities once confirmed will be to launch a "data project" with the public and private sector to determine a better way to measure inflation. "What I'm most interested in is what's the underlying inflation rate, not what's the one-time change in prices because of a change in geopolitics or a change in beef," Warsh said.

Amid all the hubbub around Warsh's confirmation, the FOMC in its current form will meet April 28 and 29 for its third monetary policy meeting of 2026. Markets expectations are overwhelmingly in favor of no rate change at this meeting, as the Fed waits for clearer signals on how the war in Iran and elevated oil and gas prices are impacting inflation and the economy.

Department of Homeland Security funding back in the spotlight

The Department of Homeland Security (DHS) has now been shut down for more than 10 weeks. Pressure on Congress to resolve the standoff is growing again in the wake of the weekend assassination attempt at the White House Correspondents' Dinner. The sprawling agency has been using available funds to pay its 260,000 employees during the shutdown but announced last week that the temporary funding for paychecks will begin running out at the start of May, adding to the pressure on Congress.

Funding for the agency has stalled due to a dispute over how much should be allocated to Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP). In a bid to resolve the issue, the Senate is moving forward on a narrow "budget reconciliation" bill that would fund ICE and CBP for three years, separately from the rest of DHS. Budget reconciliation is a parliamentary process that can be used when one party controls the House, Senate, and White House to bypass the 60-vote supermajority needed to pass most legislation in the Senate. Republican leaders are attempting to push through a bill that includes just the funding for ICE and CBP, but rank-and-file Republicans want to use the party-line bill as a vehicle for other priorities, which could slow down an already time-consuming process. With both the House and Senate scheduled to be in recess next week, resolution of the funding debate is likely to drag on until mid-May.

House Republicans unveil comprehensive privacy legislation

House Republicans recently introduced a pair of bills, one focused on tech companies' consumer data and one that deals with financial data privacy. The two bills would pre-empt state laws and create new federal standards for how tech companies and financial firms deal with customer data. Notably, the bills were introduced with the joint support of the House Energy & Commerce Committee and the House Financial Services Committee, which have often feuded about jurisdiction on privacy issues. The bills place limits on what companies can collect, give consumers the right to request access to and obtain a copy of their data that is held by a company, and ends the patchwork quilt of different regulations in different states. But the odds of legislative success in a midterm election year are long. The bills have only Republican support at this point and will eventually require compromise with Democrats to reach the 60-vote supermajority needed in the Senate.

Secretary of Labor resigns

Lori Chavez-DeRemer, who served as the secretary of labor, stepped down April 20, the third Cabinet member to resign since the beginning of March. Chavez-DeRemer's tenure at the U.S. Department of Labor (DOL) was plagued by scandals. The White House announced that Keith Sonderling, the deputy secretary, will serve as acting secretary. Sonderling is an attorney who was previously an official in DOL's Wage and Hour Division during Trump's first presidency and then became vice chair of the Equal Employment Opportunity Commission. In addition to its role in labor and employment issues, the DOL also oversees employer-sponsored retirement plans like 401(k)s. The agency recently proposed a sweeping rule that would allow alternative assets to be among the investment options in retirement plans. Public comments on that proposal are due on June 1, and the administration hopes to finalize the rule by the end of 2026.

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