Kevin Warsh was sworn in as chair of the U.S. Federal Reserve on Friday and the big question for economists — and for the Canadian economy — may be just how dovish he intends to be on interest rates.

Most observers believe Warsh will be more sympathetic to U.S. President Donald Trump and his administration, which had aggressively pushed former Fed chief Jerome Powell to cut interest rates despite the country’s longstanding tradition of central bank independence.

Warsh has pointed to the potential disinflationary impact of artificial intelligence as a reason that the U.S. central bank should be cautious about hiking rates.

But he is taking over at a time when U.S. inflation is resurgent, jumping to 3.8 per cent in April, up from 3.3 per cent a month earlier as the war in Iran has pushed up the price of oil, something that will make cutting rates trickier.

“Warsh is dovish. He’s been leaning toward the idea that the Fed should be cutting rates, but it’s unlikely he’s going to step up and do that while inflation is still roaring ahead due to the war,” said Avery Shenfeld, managing director and chief economist at CIBC Capital Markets. “He would be the lone vote for that on the committee right now.”

Currently, the Fed’s key lending rate target sits between 3.5 per cent and 3.75 per cent.

If the Warsh Fed does aggressively pursue rate cuts, Shenfeld said it is unlikely that the Bank of Canada, whose key lending rate is sits at 2.25 per cent, will do the same.

“Canada has already cut interest rates much more aggressively than the Federal Reserve in this cycle. So to some extent, if the Federal Reserve cut interest rates, they would just be taking a step to narrow a considerable interest rate gap with Canadian rates, which are now a fair bit lower,” he added.

One impact of lower U.S. rates would be a stronger Canadian dollar relative to the greenback, said Angelo Melino, an economist and professor at the University of Toronto.

This could lead to cheaper goods due to lower import costs, but would also make Canadian exports less competitive.

Melino noted the Bank of Canada is under no obligation to follow U.S. policy, but might feel some pressure from the stronger loonie.

“We have a floating exchange rate, so the Bank of Canada could do anything it wants to achieve its inflation targets within the current framework,” Melino said.

“But overall, I think the main impact would be that goods would be cheaper and the demand for our exports would be lower. So there would be some obvious reason for the (Bank of Canada) to follow the cuts, if they happen.”

Debasement of the U.S. currency has been an ongoing concern of economists and traders.

Last July, Trump told reporters that while he appreciates a strong dollar, “you make a hell of lot more money with a weaker dollar.”

Fears that rising inflation, deepening government deficits and monetary easing could lead to a weaker U.S. dollar have fuelled what JPMorgan Chase & Co. analysts called the “debasement trade,” in which investors have prioritized hard assets such as gold, real estate and cryptocurrencies to avoid potential dilution.

But Shenfeld said Canada’s exports will be more sensitive to U.S. tariffs and the upcoming Canada-U.S.-Mexico Agreement negotiations, than to any changes in the value of the U.S. dollar.

“The Canadian dollar might gain a few cents in the exchange rate against the U.S. dollar, but that’s not going to be a material change in the condition of our export performance. That’s going to be much more sensitive to what we’re able to negotiate on trade discussions with our American partners,” he said.

“Industries that still have free trade access to the American market are worried they could lose it.”

Melino noted that a debasement strategy could cause the inflation rate to rise in the U.S., which would have short-term effects on Canada’s exports and imports, but that real prices would adjust over time.

“There may be short run pressures from some of the inflationary impulses that are arising from domestic U.S. sources as well, but over the medium- and longer-term Canada can have whatever inflation rate it chooses,” he said.

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He said that a weaker U.S. dollar was not something Canadian energy and manufacturing companies should worry about.

“Usually, high inflation (gives) a sense that you don’t have good control of your finances,” he added. “It’s a sign you’re not running an economy well. That’s not the kind of place that people want to invest in.”