This Week In The Economy: Familiar Face Nominated For Fed Chair, Monetary Policy Remains On Hold, Weak Consumer Confidence

Welcome to a regular snapshot review of U.S. and international economic news that aims to 1) provide a window into the challenges and decisions facing businesses today, 2) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, and 3) assess what the impact will be for consumers.

Trump Announces Federal Reserve Chair Nominee

President Donald Trump this week announced he is nominating Kevin Warsh, a former member of the Federal Reserve Board of Governors, to be the next chair of the central bank when Jerome Powell’s term expires in May.

Warsh served on the Fed board from 2006 to 2011, and the end of his tenure was marked by his vocal disagreement with the direction of monetary policy — particularly the Fed’s decision to purchase government bonds and mortgage-backed securities to help lower long-term interest rates.

Warsh has continued to be critical of the Fed recently, calling for regime change to regain the central bank’s credibility.

A noted inflation hawk, it remains to be seen if he will push monetary policy in a direction that will appease a president that has been vocal about wanting interest rates slashed more aggressively.

What’s also uncertain is whether this will be a smooth nomination process or not. North Carolina Senator Thom Tillis has vowed to block any Fed nominations by Trump until the Department of Justice’s ongoing investigation into Fed Chair Jerome Powell (over cost overruns during the renovation of the Fed building) is resolved.

Federal Reserve Keeps Interest Rates on Hold, Citing Stubborn Inflation & Stabilizing Labor Market

The Federal Open Market Committee met this week and decided — although the vote was far from unanimous — to leave interest rates unchanged, pointing to still-high consumer price inflation and calmer employment conditions.

“Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated,” the FOMC said in its statement after the meeting.

Voting against the decision were Fed Board Governors Stephen Miran and Christopher Waller, who preferred a 25-basis point rate cut.

“We are well-positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks,” Fed Chair Jerome Powell told reporters during a press conference.

Waller, however, argued that the current level of interest rates is still negatively impacting economic activity, and that more rate cuts are needed.

He pointed to an employment market which he predicted data would show had no growth in 2025, while the unemployment rate has gone up since the middle of last year.

“This indicates to me that there is considerable doubt about future employment growth and suggests that a substantial deterioration in the labor market is a significant risk,” Waller said. “I favored reducing the policy rate to strengthen the labor market and guard against a deterioration that would be harder to address once it has begun.”

US Consumer Confidence Continues To Plummet

U.S. consumer confidence resumed its downward spiral after a short-lived rebound in December, as concerns about current economic conditions as well as rising negative sentiment regarding future employment and income prospects continue, with inflation and concerns about finances top of mind.

The Conference Board’s Consumer Confidence Index declined by more than expected in January to 84.5, down from a revised 94.2 (previously 89.1) in December.

Consumers’ assessment of current business and labor market conditions turned sour, while retaining their very pessimistic short-term outlook for income, business, and labor market conditions, which remains stuck well below the threshold that indicates a recession ahead.

“Confidence collapsed in January, as consumer concerns about both the present situation and expectations for the future deepened,” the report said. “All five components of the Index deteriorated, driving the overall Index to its lowest level since May 2014 (82.2) — surpassing its COVID-19 pandemic depths.”

Price inflation in multiple categories, tariffs and trade, politics, and the labor market saw the most mentions.

Consumers’ views of their current financial situations improved slightly in January, after revising up December’s plunge into negative territory to a small net positive. However, expectations for their ‘Family’s Future Financial Situation’ were again less positive in January after rising in December.

Average one-year inflation expectations remained at 5.7 percent in November from October. Consumers’ average 12-month inflation expectations bounced up, but the median fell further.

The Conference Board also said the share of consumers expecting a recession over the next 12 months rose back up in January, while the share of those who believe the economy is already in a recession rose for the sixth straight month.

On a six-month moving average basis, consumers appeared more cautious about plans for buying big-ticket items. Future demand for new cars continued to falter, but plans to buy used cars climbed higher. Home purchase plans continue to fall, while plans to purchase refrigerators, dishwashers, furniture, and TVs decreased. Plans to buy electronics dipped in all categories except smartphones.

Plans to purchase services in the coming months were weaker in January. The consumer spending shift in 2025 towards cheap thrills and necessary services spilled over into the new year.