President Donald Trump nominated Kevin Warsh, a former governor of the Federal Reserve, to be the next head of the Fed back in January. On Wednesday, Warsh received confirmation from the Senate, which voted 54-45 to make Warsh the next Fed chair.
Warsh served on the Federal Reserve Board of Governors from 2006 to 2011, after being nominated by President George Bush. On the Fed chair selection, President Donald Trump said in a social media post, "I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best."
Trump's appointment could impact the Fed's future policy — which will influence how much you'll earn on your savings accounts. Here's what savers should know.
A policy tug-of-war between Trump and the Fed
Trump has criticized the Federal Reserve for being slow to cut interest rates and frequently called for deeper cuts. After the Fed reduced rates by 25 basis points last December, Trump said the move "could have been doubled," according to Bloomberg. Trump wants much lower interest rates to help economic growth by lowering borrowing costs.
Warsh has built a reputation as an inflation hawk, often favoring higher rates. More recently, however, he has criticized the Fed for being slow to cut rates, calling that hesitancy a "mark against them" in a July interview with CNBC.
Meanwhile, inflation is a major sticking point for the Federal Reserve. The latest CPI report showed the Consumer Price Index rose 3.8% year-over-year, its highest increase since May of 2023.
Energy costs were the chief culprit in rising prices. The war in Iran has contributed to a national gasoline price of $4.51 per gallon, according to AAA. The more concerning price hike comes from diesel, which is currently at $5.66 per gallon.
This will have a trickle-down effect, raising prices on everyday goods and making travel more expensive. So far, flights have risen by an average of 24%, per the BBC.
"No matter how long the Iran war goes on, the economy is bound to suffer from it," write David Payne and Matthew Housiaux of The Kiplinger Letter. "How much and how severely depends on just how long the conflict continues to crimp key energy exports."
With prices likely to remain higher for the foreseeable future, the justifications for rate cuts are becoming harder to come by, even with a new Fed chair.
Will the new Fed chair lead to more rate cuts?
Trump's appointment of Warsh signals a desire for a more aggressive approach to rate cuts. Even so, a Fed chair more aligned with the president's policy preferences does not guarantee a steady pace of rate reductions.
The reason? The Federal Open Market Committee (FOMC) has 12 voting members. The Fed chair only has one vote and must build consensus with the committee to shape policy decisions.
However, there's one key area to watch: The Board of Governors has seven members, three of them Trump appointees.
Jerome Powell, who will end his term as the Fed chair on Friday, announced he would remain on the Board of Governors to help the Fed keep its independence. He will also serve a crucial vote on Fed rate decisions moving forward until his term ends in early 2028.
How can savers prepare for a new Fed chair?
Your best course of action is to get ahead of rising inflation. If you have short-term savings goals, a high-yield savings account remains one of the wisest choices.
You can earn APYs as high as 4.20% with minimal fees. Just know that if the Fed cuts rates in the future, it could impact your earnings since savings accounts have variable rates.
Use this Bankrate tool to find the best options fast:
If you have the flexibility to lock in your cash, you should look at CDs. Unlike high-yield savings accounts, CDs have set rates, so what you get now is what you'll get through the whole term of the CD, even if the Fed cuts rates. The tradeoff, however, is that you have to hold your cash in the CD for the full term to get the full interest payout. That means if you get a five-year CD, for example, you would have to leave your cash there for five years.
The best CD rates Kiplinger has found are around 4%, varying depending on the issuer and term. Use this Bankrate tool to find and compare the best CD rates quickly:
Final thoughts on the new Fed chair's confirmation
The Senate's confirmation of Kevin Warsh as the new Fed chair could have a significant impact on future rate cuts. However, keep in mind the Fed has 12 voting members. So, even with another Trump appointee leading the group, it doesn't necessarily mean the Fed will cut rates at every meeting.
The more pressing focus is inflation. As prices keep rising, sheltering your money from its impact becomes more vital. That's where a high-yield savings account can help. It will keep your earnings ahead of inflation. And if inflation continues to climb, the Fed might be forced to raise rates in the future, putting you in the perfect position to capitalize.
