Welcome to Trendlines. The secret password is “Margaret Meehan, Parkdale.”
Today, a look at what’s on the line for ordinary Americans with the upcoming Federal Reserve leadership change. Plus: huge Wordle news.
➡️ The Latest
- Zipcar, Panera, and Thermo Fisher announce local layoffs.
- Four days before Donald Trump’s inauguration last year, lieutenants to an Abu Dhabi royal secretly signed a deal with the Trump family to purchase a 49 percent stake in their fledgling cryptocurrency venture for half a billion dollars.
- It’s tax prep time. Here’s what you need to know about filing this year.
🏛️ Chair-apparent
Kevin Warsh is poised to return to the Federal Reserve after a 15-year hiatus, this time as the boss. His youthful good looks haven’t changed much, but his economic views have.
President Trump on Friday tapped Warsh, a former Fed governor, to replace Chair Jerome Powell when his term ends in May.
If approved by the Senate, Warsh would hold what is often called the second most powerful job in the country. Fed policies affect everything from job prospects to inflation to retirement account balances.
The reaction: Trump’s pick elicited the usual protests from his harshest critics.
They said Warsh will be too beholden to the president, eroding the Fed’s freedom to steer the economy free of political interference. Trump wants the next Fed leader to cut interest rates aggressively, and Warsh wouldn’t have gotten the nod unless he agreed.
“If Donald Trump says it, then Kevin Warsh echoes it, even though it contradicts everything he had done for years,” said Senator Elizabeth Warren.
Yet Warsh also drew support from unexpected quarters.
“I was relieved by the pick because I believe he is not only very competent, but he is also likely to be his own man at the Fed,” said Jason Furman, a Harvard economist and chair of the Council of Economic Advisers under President Obama.
Why it matters: Looming over the change in Fed leadership is this basic question: What does this mean for ordinary Americans trying to buy a home, finance a car, or simply keep pace with rising prices?
The answer hinges on whether Warsh can deliver dramatically lower interest rates while maintaining the Fed’s credibility as an inflation fighter. Without that credibility, longer-term rates that affect consumers could rise even if short-term rates set by the Fed decline.
It’s a tough assignment — and it starts before he’s even confirmed.
If Warsh wants to signal he’ll defend Fed independence, he could persuade Trump to drop the effort to fire Governor Lisa Cook over unproven fraud allegations and end the Justice Department’s vindictive investigation of Powell.
Step back: Warsh, 55, is no stranger to Washington.
He served as an economic adviser to George W. Bush before joining the Fed board in 2006 as the youngest governor ever. He earned a reputation as an inflation fighter, or hawk, and an effective liaison with Wall Street. He resigned in 2011 after arguing that Chair Ben Bernanke’s second round of stimulus was a risky and unwarranted expansion of Fed powers.
Trump considered Warsh for the top Fed job during his first term but chose Powell instead, in part because he didn’t agree with Warsh’s hawkish views. Warsh openly campaigned for the position this time, adopting Trump’s criticism of the central bank and calling for rate cuts.
Fed policy “has been broken for quite a long time,” he said in a July CNBC interview.
The rate debate: Trump says the Fed should slash borrowing costs immediately to accelerate economic growth.
Lower rates make it cheaper to borrow for mortgages, car loans, and credit card debt. They also encourage people to refinance existing loans at better terms, freeing up cash for other uses. Businesses typically add workers to meet increased consumer demand.
But after reducing its benchmark rate three times last year — to 3.5-3.75 percent — policy makers have hit pause. Most want to see whether those cuts are enough to spur hiring and prevent unemployment from rising.
Inflation equation: Fed officials are also waiting to see which way inflation moves. Their preferred price measure hovered around 2.8 percent last year and has been above the 2 percent target since 2021.
If inflation fell closer to that goal, it would be easier for Warsh to persuade the rest of the Fed’s 12-member rate-setting committee to ease credit. Three members, all Trump appointees, support more cuts.
A small balance sheet: Warsh has said the Fed should unload much of its $6 trillion in assets — mostly Treasuries and mortgage-backed securities bought after the 2008 financial crisis and 2020 pandemic to pump money into the banking system and keep rates low.
He argues such massive holdings distort the bond market and encourage the government to rack up big budget deficits. But there’s an obvious tension: Aggressive balance sheet cuts could actually push long-term rates higher by draining money from the financial system.
“He’s not been specific about how he would do it,” said Eric Rosengren, a former president of the Federal Reserve Bank of Boston. A small balance carries the risk of disrupting the way banks lend money to each other, he said, making credit more expensive.
Final thought: Warsh’s biggest liability is that he was selected by Trump, who regularly puts loyalists like Kristi Noem and Kash Patel into jobs they aren’t qualified for. But Warsh is no hack. He is smart and experienced.
For the good of the country, I hope he’ll be more like Treasury Secretary Scott Bessent: obsequious in public, but a voice of reason behind the scenes.
There’s too much at stake to let Trump ride roughshod over the Fed.
🎙️ On the Record
“ICE out. We’re not savage. We’re not animals. We’re not aliens. We are humans and we are Americans.”
— Bad Bunny, accepting the first of three Grammy Awards on Sunday.
🗳️ Politics & Policy
Countermove: Opponents are suing to block a proposal that would trim the Massachusetts income tax cut from getting on the ballot.
🚢 Trade
Delhi deal: President Trump said he reached a trade agreement with India that slashes US tariffs on Indian goods in exchange for India lowering trade barriers, stopping purchases of Russian oil, and buying oil instead from the US and potentially Venezuela.
👩💻 Artificial Intelligence
X-man: Elon Musk is in advanced talks to combine SpaceX with xAI, underscoring how the billionaire’s artificial intelligence ambitions have grown too costly for any one of his entities to shoulder alone.
Truth or alibi: Did AI really drive layoffs at Amazon and other firms? It can be hard to tell.
🏗️ Development
Renaissance men: Entrepreneurs are banking on a revival in downtown Springfield, New England’s third-largest city.
📰 Media
Regrouping: After years of declining readership and staff, the Christian Science Monitor is pushing ahead with a print and digital redesign, the launch of an app, and expanded efforts on platforms such as Apple News.
🔢 By the Numbers
About $7 million
— The estimated opening weekend box office sales for “Melania,” the documentary about first lady Melania Trump, the best showing in a decade for a nonfiction title, excluding concert films and Disney nature titles. Amazon MGM Studios paid $40 million for the rights to the film and spent $35 million to market it.
🔠 The Closer
The Wordle people are at it again.
For I-don’t-know-the-how-manyth-time, the keepers of The New York Times’ guess-the-word game have changed what they reckon is the most efficient starting word. Or, more precisely, the optimal word as determined by Wordle Bot, software programmed to solve Wordles in as few steps as possible.
Back in August, on Wordle Bot’s recommendation, I switched my opening guess to “place” from “clasp” (for hard mode). It was the ninth time, at least, that I committed to a new opener. As I learned the best choices for a second guess — based on which letters came up green on the first try — I began to beat the average a little more frequently.
Now, Wordle Bot has gone back to “clasp.” The Wordle Bot FAQ says the bot constantly analyzes new data to keep up with the types of words most likely to appear. The differences in efficiency are tiny.
My family thinks I’m nuts. They ignore Wordle Bot and go with their gut.
In other Wordle news, starting on Monday, the game began reusing words that had been the answer in previous games.
“There are still many first-time answers to debut, but also more chances for Wordle in ones and those magical, serendipitous moments when Wordle overlaps with real life,” the Times said in its Gameplay newsletter.
OK, that’s enough Wordle talk, even for me.
📆 On this date in 1887, Groundhog Day was celebrated for the first time at Gobbler’s Knob in Punxsutawney, Penn. The festivities have become something of a tourist bonanza for Punxsutawney since the 1993 movie “Groundhog Day,” starring Bill Murray. This year, Punxsutawney Phil saw his shadow, meaning six more weeks of winter weather.
👋 Thanks for reading. Trendlines will be back on Thursday.
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Larry Edelman can be reached at larry.edelman@globe.com.