Kevin Warsh wanted the job. On Wednesday, the Senate gave it to him — along with 3.8% annual inflation, a divided rate-setting committee, and a war in the Middle East that keeps pushing prices higher.

The 54-45 vote, largely along party lines, confirms Warsh as the next chair of the Federal Reserve. He replaces Jerome Powell, whose term as chairman ends Friday, at a moment when price pressures are running at a three-year high and moving in the wrong direction.

A Labor Department report released Tuesday showed consumer prices rose 3.8% in the 12 months through April — the biggest annual increase in nearly three years. The spike has been fueled in large part by the war with Iran, which has disrupted tanker traffic through the Strait of Hormuz and sent crude oil and gasoline costs climbing.

President Donald Trump has made clear he wants lower interest rates. Warsh has echoed that call, arguing there is room for the Fed to cut. But the incoming chairman also pushed back on the idea that he would take orders from the White House, denying Senator Elizabeth Warren’s accusation during his confirmation hearing that he would be Trump’s “sock puppet.” Warsh pledged to use his own judgment in setting monetary policy.

The reassurance is noted. The context is uncomfortable. Trump’s pressure campaign against the Fed has been unlike anything in modern central banking history — at one point, the Justice Department launched a criminal investigation into the institution. That probe was dropped only after Senator Thom Tillis, Republican of North Carolina, blocked the committee vote on Warsh’s nomination to protest it, relenting once a US attorney agreed to abandon the investigation.

A Committee Not of One Mind

Warsh inherits a Federal Open Market Committee that cannot agree on what to do next. At the April rate-setting meeting, three members hinted their next move could be a rate increase as easily as a cut — a striking signal when the president is publicly demanding cheaper borrowing.

The Strait of Hormuz remains a chokepoint. As long as oil flows through it are at risk, the inflation numbers are more likely to worsen than improve. Warsh’s preference for lower rates may collide with data that points in the opposite direction.

Powell’s Unconventional Encore

In a break with tradition, Powell will remain on the Fed’s governing board after stepping down as chairman. Outgoing chairs typically leave the central bank when their leadership term ends. Powell, according to NPR, is determined to safeguard the institution’s independence and has vowed to keep a low profile while retaining his vote on the 12-member rate-setting committee.

That means Warsh will preside over a body that includes his predecessor, several members wary of cutting rates, and a president who has shown willingness to deploy the Justice Department against the Fed itself.

The Reform Agenda

Warsh has also promised structural changes. He has proposed overhauling how the government measures inflation and rethinking how Fed policymakers communicate with the public. The details remain thin. The ambition is clear.

He brings relevant experience to the task. Warsh previously served on the Fed’s governing board from 2006 to 2011, acting as the central bank’s liaison to Wall Street during the financial crisis. He knows the building. He also knows how to talk like someone who has been away from it long enough to claim outsider credentials.

According to MarketWatch, both Wall Street and Washington will be watching closely to see whether Warsh can bring skeptics inside the Fed and beyond on board with his agenda.

What the Data Demands

The immediate question is straightforward: which way do rates go? Warsh says there is room to cut. The Labor Department says prices rose 3.8% last year. Three of his new colleagues say the next move might be up. And the Strait of Hormuz says none of this is over.

The longer-term question is institutional. Warsh promised independence under oath. He now has to deliver on it while leading an organization the president has already investigated.

Powell’s decision to stay on the board is its own signal — quiet insurance that the central bank’s institutional memory will not walk out the door on Friday.

Warsh takes the wheel. The road is not smooth.

Sources