Fed Chairman candidate pledges to maintain independence

On April 21 (US time), Kevin Warsh – the person nominated by US President Donald Trump to be Chairman of the Federal Reserve (Fed) for the next term – will testify before the US Senate. According to a prepared speech released in advance, he “committed to ensuring the independent implementation of monetary policy”.

Warsh also pledged to “cooperate with the administration and Congress on matters that are not monetary policy, but fall within the scope of the monetary authority’s mandate.”

The independence of the Fed has been a hot topic recently, when President Trump repeatedly criticized this agency and Chairman Jerome Powell for not drastically reducing interest rates.

Last year, Mr. Trump even threatened to fire Powell. The US President also repeatedly announced that he would only nominate candidates who support interest rate reduction for the position of Fed Chairman.

Warsh believes that the Fed’s independence is threatened because the agency cannot ensure the price stability goal assigned by Congress. “Low inflation helps the Fed resist pressure and criticism. But when inflation spiked recently, people suffered serious harm. They may lose confidence in the economic management system and doubt whether the independence of monetary policy is a good thing or not,” he wrote.

“Inflation is a choice, and the Fed is responsible for it,” Warsh asserted. Previously, he also repeatedly criticized agency officials for explaining post-pandemic inflation as being due to supply shock.

Warsh also wants to push for reforms at the currency regulator. He believes that the tendency of large and complex organizations to stand still is “disadvantaging” in a rapidly changing world. “During what is considered the most important period in our country’s history, I believe that a reform-oriented Fed can make a real difference to Americans,” he wrote.

In his prepared speech, Warsh spent most of the content reiterating his criticisms of the Fed over the past 15 years. According to him, this agency needs to “maintain its true role” instead of expanding into fiscal and social policies. Previously, he used this expression to criticize the Fed’s research into the economic impact of climate change and pursuit of the goal of full employment. However, over the past few years, the agency has almost abandoned activities related to climate change.

Warsh served as a member of the Fed Board of Governors from 2006-2011. He graduated from Stanford University and Harvard Law School. Before joining the Fed, he served as Vice President and director of mergers and acquisitions (M&A) at Morgan Stanley Bank, special assistant to President George W. Bush on economic policy and held the role of secretary at the National Economic Council.

Fed Chairman Jerome Powell’s term will end in May. However, the path for Kevin Warsh to be voted on by the Senate is still unclear. Senator Thom Tillis said he would block approval of Warsh until the federal criminal investigation involving Mr. Powell was resolved. Tillis is also a member of the US Senate Banking Committee.