Central bank officials from around the world believe they may have found a new ally in Federal Reserve Chair Kevin Warsh, providing a rare point of alignment in an otherwise difficult relationship with Washington.
Over three days at the European Central Bank’s annual gathering in Sintra, Portugal, the new Fed chair held a series of private meetings with counterparts from Europe and beyond, including a lengthy lunch with ECB President Christine Lagarde in the cloistered courtyard of the former convent that hosts the conference.
The conversations remained largely high-level, barely touching on issues such as inflation trends, shadow-banking risks or international policy coordination, sources familiar with the discussions said.
But officials interpreted Warsh’s outreach as a sign the Fed would stay engaged on the global stage, easing fears of a retreat from the international forums that anchor central bank cooperation.
That reassurance was significant. Some central bankers had privately worried that a Fed led by a Trump appointee could prove more susceptible to White House pressure on interest rates or less committed to the international coordination that has long been a pillar of global monetary policy.
WHY THE STAKES ARE HIGH
The Federal Reserve remains the ultimate provider of dollar liquidity in times of financial stress and, for some countries, the custodian of a substantial share of their gold reserves.
It is also the most influential voice in global debates on monetary policy and financial regulation.
Against that backdrop, policymakers arrived in Sintra keen to gauge whether the close working relationships many had enjoyed with former Fed Chair Jerome Powell would survive the transition.
Several central bankers who have known Warsh since his time as a Fed governor between 2006 and 2011, or through his later involvement in the Group of Thirty consultative body, said they recognised the same policymaker they had dealt with for years.
Others cautioned it was too soon to judge how he would perform once in office as he navigates the competing demands of preserving his credibility and managing pressure from the White House.
AIR KISSES AND FRENCH CONVERSATIONS
Warsh’s reception was notable because many attendees had previously closed ranks around Powell during his prolonged clash with Trump, with a group of current and former central bankers publicly backing his independence and participants at last year’s Sintra conference giving him a standing ovation.
What might have been an awkward debut instead took on some of the characteristics of a central-bankers’ love-in.
Lagarde set the tone at the conference’s opening dinner, greeting the late-arriving Warsh with air kisses and publicly expressing her desire to work closely together.
Warsh replied with gestures of his own.
Fluent in French after studying in France, Warsh chatted with some French participants in their own language and, unlike some conference VIPs who tend to remain in small circles, spent time circulating among governors at Tuesday’s informal dinner.
Speaking on a panel alongside ECB President Lagarde, Bank of England Governor Andrew Bailey and Bank of Canada Governor Tiff Macklem, Warsh struck a markedly collegial tone, saying he was “honoured to be on stage with three colleagues”.
Such details may seem trivial, but in the small world of central banking personal relationships can matter when cooperation is needed during moments of financial stress.
FINDING COMMON GROUND ON POLICY
Participants also detected common ground on policy communication.
Warsh’s preference for simpler messaging and scepticism towards forward guidance appeared to dovetail with a broader “back to basics” theme running through the conference.
He used the gathering to underscore the Fed’s independence and said policymakers shared a number of “common calls” despite operating in different jurisdictions.
Lagarde argued that the ECB no longer needed “complex forms of forward guidance”, while Bank of England Governor Andrew Bailey noted such guidance was “much easier to put in place than it is to take it away”.
There were differences beneath the surface. Lagarde said the ECB would continue explaining how it responds to incoming information, a concept she dubbed “framework guidance”, a newly coined phrase that later found an echo in Bank of Canada Governor Tiff Macklem’s remarks.
Warsh, by contrast, showed little interest in discussing the Fed’s policy playbook.
Still, participants focused more on the similarities than the differences, with some seeing discussions at the ECB about normalising bank reserve requirements as further evidence that central banks on both sides of the Atlantic are moving away from crisis-era practices.
(Editing by Mark John and Shri Navaratnam)
