Funding & Finance

Regime Change at the Fed

Kevin Warsh called for “regime change” at the Federal Reserve last year. Now he’s in charge. But the old

By Conor Healy

May 20, 2026

Kevin Warsh called for “regime change” at the Federal Reserve last year. Now he’s in charge. But the old regime hasn’t left the building.

Jerome Powell’s term as Fed chair ended Friday. He is not leaving. For the first time in 75 years, an outgoing chair will remain on the Federal Reserve’s Board of Governors, retaining a vote on interest rates, sitting in the room while his successor runs meetings. Powell says he won’t be a “shadow Fed chair.” Trump says Powell is staying because “he can’t get a job anywhere else.”

The truth is stranger. Powell is staying because the Trump administration tried to prosecute him.

The Investigation

In January, the Justice Department opened a criminal investigation into the Federal Reserve over a $2.5 billion renovation of its headquarters. The probe was run by Jeanine Pirro, the Trump-appointed US Attorney for Washington DC and former Fox News host. Subpoenas were issued. Powell was a target.

The investigation was widely seen as political pressure. Trump had spent months attacking Powell for not cutting rates fast enough. The timing was not subtle: launch a criminal probe, force Powell to resign, replace him with someone who would follow orders.

Powell refused to leave. In April, he announced he would stay on the Fed board until the investigation was “well and truly over with transparency and finality.”

“My concern is really about the series of legal attacks on the Fed, which threaten our ability to conduct monetary policy without considering political factors,” Powell said at his final press conference as chair. “I worry that these attacks are battering the institution.”

The DOJ dropped the criminal probe in late April but referred it to the Fed’s inspector general, leaving the door open to restart it. Powell stayed anyway.

The New Chair

Kevin Warsh is a Wall Street banker turned crisis manager turned Fed critic. He served on the Fed’s Board of Governors from 2006 to 2011, becoming the youngest governor in history at 35. During the 2008 financial crisis, he was one of the “Four Musketeers” who kept the system from collapsing alongside Ben Bernanke, Timothy Geithner, and Donald Kohn.

Then he turned against his former institution. In 2010, while still a sitting governor, Warsh published an op-ed in the Wall Street Journal attacking the Fed’s quantitative easing policy as “dangerous and defeatist.” Public dissent from inside the Fed is almost unheard of. He resigned four months later.

For 15 years, he has been one of the Fed’s loudest outside critics, arguing from Stanford’s Hoover Institution that the central bank has drifted beyond its mandate. Last year, in a CNBC interview, he called for “regime change.”

Trump gave it to him. The Senate confirmed Warsh 54-45 on Wednesday, the most partisan vote for a Fed chair in modern history. Senator John Fetterman was the only Democrat to vote yes.

Warsh is now the wealthiest Fed chair ever, with holdings exceeding $100 million. He will have to divest most of them under ethics rules.

One Vote Out of Twelve

The Fed chair is not a dictator.

Interest rates are set by the Federal Open Market Committee, which has 12 voting members. The chair gets one vote. The FOMC operates by consensus, with the chair influencing decisions through persuasion rather than authority. The custom is that governors vote with the chair.

But custom is not law.

Powell will be one of those 12 voters. He has served at the Fed for over a decade. When he speaks in FOMC meetings, people listen. If he disagrees with Warsh’s direction, he can vote against him. And others may follow.

At Powell’s final meeting as chair, there were four dissenting votes, the first time since 1992. Three regional Fed presidents wanted stronger anti-inflation language. One Trump appointee wanted immediate rate cuts. The committee hasn’t been this divided in decades.

Warsh inherits a fractured institution. And his predecessor will be watching from inside the room.

The Constraints

Trump expects rate cuts. The data says no.

Consumer prices rose 0.6% in April after 0.9% in March. Wholesale prices are climbing at the fastest pace since 2022. Oil is above $90 a barrel because of the Iran war and tanker disruptions in the Strait of Hormuz. The Fed’s inflation target is 2%. They are nowhere close.

Warsh’s first FOMC meeting as chair is June 16-17. Markets expect rates to stay at 3.50% to 3.75% for the rest of the year. The hawkish faction on the committee is growing.

Warsh will inevitably disappoint Trump. The question is whether Powell’s presence gives him cover. With the former chair still on the board, still voting, still speaking, Trump has someone to blame other than his own appointee.

“He’s breaking 75 years of precedent,” Senator Tim Scott said of Powell’s decision to stay. “Every time you get a new chairman, the former chairman leaves. That’s good news because what you don’t want are these philosophies in conflict.”

The philosophies are in conflict. And for the first time since Truman was president, both chairs are in the same room.

Regime change has come to the Fed. The old regime is still there.