Washington (United States) (AFP) – Kevin Warsh, Donald Trump’s choice to lead the US Federal Reserve, vowed Tuesday to protect central bank independence at his confirmation hearing, despite intense pressure from the president. “I’m committed to ensuring that the conduct of monetary policy remains strictly independent,” Warsh said in opening remarks to the Senate Banking Committee. He also expressed commitment to fighting inflation.
The hearing will be scrutinized as it marks a key hurdle that Warsh must overcome to succeed Fed Chair Jerome Powell when his term ends on May 15. But it comes as Trump has escalated criticism of the Fed for not cutting interest rates more aggressively. Earlier Tuesday, Trump told CNBC he would be disappointed if the new Fed chair did not lower rates swiftly, and again slammed Powell for renovation costs at the bank’s headquarters. “We should have the lowest interest rate in the world,” Trump said.
The session will be tense, with all 11 Democrats on the Banking Committee last week urging for a delay in Warsh’s nomination proceedings until separate investigations into Powell and Fed governor Lisa Cook are closed. Republican Senator Thom Tillis, who sits on the panel led by his party, has also vowed to block all Fed nominees — including Warsh — until the Justice Department probe involving Powell is resolved. With 13 Republican members on the committee, Tillis’ vote against Warsh’s confirmation could be enough to set up an impasse.
Warsh will likely face sharp questioning from lawmakers on issues ranging from his wealth to past connections with the late US sex offender Jeffrey Epstein, alongside his views on economic issues. “It will be his first chance since he was nominated by the president to demonstrate that he intends to be a credible, independent central banker,” Brookings senior fellow David Wessel told AFP. “He has to be really careful to not anger Trump,” Wessel said, but Warsh will also have to avoid the impression “that he’s weak or subject to political pressure.”
On Tuesday, Warsh maintained that it is up to the Fed itself to stay free of political influence. “I do not believe that independence of monetary policy is threatened when elected officials state their views on rates,” he said. He added that inflation is the Fed’s choice to deal with, while emphasizing that the central bank must “stay in its lane” when it comes to policies. Banking Committee chairman Tim Scott called the hearing an “opportunity to refocus” the Fed on its dual mandate of price stability and low unemployment.
But Elizabeth Warren, the top Democrat on the panel, cautioned that probes on Powell and Cook were designed to pressure Fed policymakers into doing Trump’s bidding. She warned against having “a sock puppet” of the president in charge at the central bank.
ING economist James Knightley told AFP the focus on Tuesday will be on how closely Warsh is aligned with the president on rate cuts. During Warsh’s 2006-2011 Fed governor tenure, he was considered more “hawkish” — a term for policymakers who favor controlling inflation by keeping interest rates higher. But he appears to have shifted his stance, Knightley said. Knightley pointed to indications that Warsh is an advocate for tech investments and AI, which some believe can change the US economy’s ability to grow without generating the same degree of inflationary pressures.
Yet, higher gasoline prices due to war in the Middle East prove a more immediate challenge to rate cuts. The Fed’s credibility on inflation could be questioned if Warsh pushed too much for lower rates. He will have to acknowledge near-term price shocks while explaining that these may not create a persistent inflationary threat, Knightley said.
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