WASHINGTON—Kevin M. Warsh is expected to tell lawmakers today that the Federal Reserve must maintain independence in setting interest rates, even as he signals openness to greater presidential influence over other areas of policy, according to a new report.
In prepared remarks for a Senate Banking Committee hearing scheduled Tuesday, President Donald Trump’s nominee to lead the central bank emphasizes that monetary policy decisions should be grounded in “analytic rigor, meaningful deliberation and unclouded decision-making,” according to the New York Times.
Warsh is expected to acknowledge that elected officials, including the president, may express views on interest rates, but will stress that central bankers must remain independent in their judgments. He will say policymakers should be “strong enough to listen to a diversity of views,” while translating “imperfect data into meaningful insight,” the Times reported.
The testimony marks a key step in Warsh’s bid to succeed Jerome H. Powell, whose term as chair ends May 15. His confirmation prospects remain uncertain amid concerns in Congress over political pressure on the Fed.
Push for Lower Rates
Trump has repeatedly pushed for lower interest rates and criticized Powell and other Fed officials for not cutting rates more aggressively. The president has also sought to remove Fed Governor Lisa D. Cook, whose legal challenge to block her ouster is now before the U.S. Supreme Court, according to the Times.
Separately, the Justice Department has opened a criminal investigation into Powell related to renovations at the Fed’s Washington headquarters. Sen. Thom Tillis (R-NC), a member of the Senate Banking Committee, has said he will block any Fed nominee from advancing until those legal matters are resolved.
Warsh’s prepared remarks do not address those controversies directly. Instead, he is expected to underscore a firm stance on inflation, stating, “Inflation is a choice, and the Fed must take responsibility for it,” signaling he may not support rate cuts absent supporting economic conditions, according to the Times.
He is also expected to argue that the Fed’s independence is strengthened by avoiding involvement in fiscal and social policy issues, the Times added.
“Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise,” Warsh will say, according to the Times. “The Fed should not act as some general-purpose agency of the U.S. government.”
Prior Term at Fed
Warsh, who served as a Fed governor until 2011, has previously criticized the central bank for what he described as “mission creep,” including expanding its balance sheet during and after financial crises, the Times noted. \ While the Fed has reduced its holdings by about $3 trillion from a pandemic-era peak near $9 trillion, the balance sheet remains larger than Warsh has supported.
The Times report added that he is also expected to argue that not all Fed functions warrant the same level of independence, particularly in areas such as regulatory policy and the management of public funds.
As the CU Daily has previously reported, the Fed has already taken steps aligned with the administration’s regulatory priorities, including easing certain capital requirements for large and regional banks, with further changes possible if Warsh is confirmed.
