Warsh Vows Fed Independence... Urges Board Members to Refrain from Rate Comments

Reiterates Fed Independence
Calls Presidential Rate Remarks "Not a Threat to Independence"
Negative on Active Communication with the Markets

Kevin Warsh, nominee for Fed Chair. Photo by AP Yonhap News

Kevin Warsh, nominee for Chair of the U.S. Federal Reserve (Fed), on April 21 (local time) firmly denied concerns during his confirmation hearing that he would become a "puppet" of U.S. President Donald Trump, who has been persistently pressuring for interest rate cuts. Warsh stated that if confirmed, he would act independently as chair. He also expressed a negative stance toward active communication with the markets, describing Fed Board members' remarks on rate policy as "premature comments."

During the confirmation hearing held by the Senate Banking Committee, Warsh was asked by Democratic senators how he would respond to President Trump's pressure to cut rates. He replied, "Although the President nominated me, if I am confirmed as chair, I will serve as an independent actor."

When asked whether President Trump had ever explicitly demanded rate cuts, Warsh emphasized, "The President has never asked me to promise a rate cut. He has not requested it, he has not pressured me, and I have never done so myself."

This refers to a Wall Street Journal (WSJ) report that President Trump, during a 45-minute meeting with Warsh in December of last year, asked, "Can I trust that if you are selected as Fed Chair, you will support a rate cut?" In an interview with WSJ at the time, President Trump said, "Professor Warsh believes rates should be lowered," adding, "Everyone else I spoke with thinks the same."

 

However, Warsh stated that elected officials such as the President or members of Congress expressing opinions about the base interest rate does not undermine the Fed's independence.

President Trump has faced criticism for undermining the Fed’s independence by publicly criticizing Federal Reserve Chairman Jerome Powell and pressuring for interest rate cuts. Warsh’s position is that such presidential remarks are not problematic.

Warsh said, "Presidents tend to prefer lower interest rates," adding, "If there is a difference, it is that President Donald Trump expresses it very openly, without intermediaries or ambiguity."

He continued, "Over the past few years, I have heard many strong opinions on rates from senators on this committee. A humble Fed Chair should listen to such opinions but make decisions independently."

Somewhat Negative Stance on Communication with the Markets

Jerome Powell, Chair of the Federal Reserve, holding a virtual press conference after the base interest rate freeze in 2020. Photo by Yonhap News Agency

One of the key points of interest at this hearing was communication with the markets. Warsh avoided answering whether he would maintain the tradition of the Fed Chair holding a press conference after every Federal Open Market Committee (FOMC) meeting.

He said, "To be candid, the Fed Chair and other officials around the FOMC speak quite frequently. It is not a lack of transparency." He added, "I believe pursuing truth is more important than repetition."

He commented that Fed officials should refrain from making hasty remarks about monetary policy. CNBC pointed out that this suggests the kind of culture Warsh would foster if he became Fed Chair.

Warsh stated, "Too many Fed officials are already stating opinions in advance about the next meeting, the next quarter, and where next year's rates should be. This is not helpful at all."

Avoided Answering Whether Rate Cuts Would Be a Factor for Inflation

Warsh avoided giving a direct answer to whether cutting rates drastically below 1% as President Trump demanded would contribute to inflation, saying, "Unlike many of my colleagues at the Fed, I do not believe in forward guidance. I do not think we need to signal decisions in advance."

He also disagreed with suggestions that the Trump administration’s tariff policies would push the Personal Consumption Expenditures (PCE) price index above target levels, stating, "I do not agree."

Referring to economist Milton Friedman’s concept of the "tyranny of the status quo," Warsh said, "Status quo practices and policies are especially harmful when the world is changing so rapidly," adding, "A reform-oriented Fed can bring real change to the American people."

Dollar Strengthens Amid Iran Crisis Aftermath. Yonhap News

He stated, "The data used to judge inflation is quite incomplete. One of the tasks for the Fed is to harness new understanding and use new data sources to truly assess actual inflation in the economy."

He continued, "We have used core PCE, excluding food and energy, as an indicator. This was a rough estimate to gauge the situation. But now there is no need for such rough estimates," adding, "What I am most interested in is the 'underlying inflation rate.'"

To this end, he introduced, "One of the first reform initiatives I would like to pursue at the Fed is to launch a data project. The public and private sectors would jointly conduct an evaluation, surveying 1 billion prices. The change in the 501 millionth price is what I consider to be inflation." This suggests he intends to use the median of a massive price survey—excluding extreme or temporary factors—as the benchmark for measuring inflation.

Warsh stated, "I believe price stability is when price changes are so minimal that no one is even talking about them," and emphasized, "Economics is neither physics nor mathematics. In economics, you should focus to the left of the decimal point, not the right. We must focus on the big issues."

Meanwhile, the U.S. Senate Banking Committee consists of 24 members (13 Republicans, 11 Democrats). If all Democratic members and at least one Republican oppose, the confirmation cannot pass the committee.

This content was produced with the assistance of AI translation services.