Federal Reserve chair nominee Kevin Warsh said Monday the central bank must be largely independent of political influence but also should stay focused on its primary goals.
In remarks to be delivered Tuesday to the Senate Banking Committee, Warsh also expressed firm commitment to fighting inflation with only one mention of the labor market.
“Simply stated, Fed independence is largely up to the Fed,” the former Fed governor said.
“The Fed must stay in its lane. Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise,” he added.
President Donald Trump announced in late January that Warsh would be his pick to replace current Chair Jerome Powell.
Since the replacement process began, questions have been raised about whether Warsh or any other Trump pick would be able to withstand the repeated pressure from Trump and other White House officials to lower interest rates.
Kevin Warsh, former member of the Federal Reserve Board of Governors.
Courtesy: Hoover Institution
While Warsh did speak of the importance in political independence, he issued several qualifiers.
“I do not believe the operational independence of monetary policy is particularly threatened when elected officials — presidents, senators, or members of the House — state their views on interest rates,” he said.
Moreover, he said the Fed does not enjoy the same independence in some of its other responsibilities as it does when setting interest rates and other aspects of monetary policy. He specifically mentioned “their stewardship of public monies,” relevant as an investigation proceeds into the Fed’s multi-billion-dollar headquarters renovation.
Though Powell’s term expires in May, the nomination has been complicated by an investigation the U.S. Attorney’s Office in Washington, D.C. has launched into the project. Sen. Thom Tillis, R-N.C., has vowed to block Warsh’s nominee from leaving committee until the investigation is resolved, and Powell himself has pledged to stay on as chair until the matter is settled as well.
Warsh’s speech also features a familiar criticism he has brought in recent years, namely that the Fed on multiple occasions has overstepped its boundaries and reached into areas such as climate change and social inequality.
“The Fed must stay in its lane,” he said. “Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise.”
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