Warsh Tells Senators the Fed Will Stay “Strictly Independent”

Kevin Warsh, President Trump’s nominee to lead the Federal Reserve, told the Senate Banking Committee on Tuesday that the central bank will remain “strictly independent” in setting monetary policy, CBS News and NPR reported.

“Monetary policy independence is essential,” Warsh said in his opening statement, according to CBS News. Asked by Sen. John Kennedy, a Louisiana Republican, whether he would be the president’s “human sock puppet,” Warsh answered, “Absolutely not,” NPR reported. He said Mr. Trump never asked him to commit to any rate decision, “nor would I ever do so.” Of the president’s push for lower rates, Warsh said it “sounded very similar to every other president in economic history I’ve studied.” He told senators he would welcome “messier meetings” with more dissent among the Fed’s rate-setting committee.

Democrats were not persuaded. Sen. Elizabeth Warren of Massachusetts, the committee’s ranking Democrat, said the Senate “should not be aiding and abetting Mr. Trump’s takeover of the Fed by installing his sock puppet,” CBS News reported. NPR’s Scott Horsley described the hearing as polarized, with committee Republicans mostly backing Warsh and Democrats uniformly opposed. Warren also pressed him on his finances. NPR reported that Warsh is worth more than $100 million and that his disclosure form is opaque about how and where it is invested.

The nominee’s views on rates have shifted. A former Fed governor with a reputation as an inflation hawk, Warsh has more recently argued that productivity gains from artificial intelligence could allow the Fed to cut rates while keeping prices in check, NPR reported. “I think the economy’s potential is growing quite quickly,” he told the panel, according to NPR. That argument faces a hard test: CBS News noted the Iran war has pushed energy prices up and inflation to its fastest pace in almost two years. NPR added that the 12-member rate-setting committee, not Warsh alone, decides, and that many members are reluctant to cut until inflation nears the 2 percent target.

Warsh also said the Fed could do better with a narrower focus. According to NPR (not independently confirmed), he suggested fewer news conferences and speeches by Fed officials, better inflation data and a smaller central-bank balance sheet, and that the Fed should avoid political questions such as climate change.

The larger obstacle is another Republican. Sen. Thom Tillis of North Carolina said at the hearing that he supports Warsh but will not vote to confirm him until the Justice Department ends its investigation of Fed Chair Jerome Powell, CBS News reported. “If we put everybody in prison in federal government that had had a budget go over, we’d have to reserve an area roughly the size of Texas for a penal colony,” Tillis said, according to NPR. NPR reported that a federal judge has blasted the Justice Department’s investigation as an unjustified act of intimidation, and that the department has promised to appeal.

According to CBS News, a majority of the 24-member committee must approve the nomination before a vote of the full Senate, which also needs only a simple majority. Powell’s term as chair ends May 15.