Fed Chair Nominee Warsh Set To Commit To Be ‘strictly Independent’ On Rates

Federal Reserve Chair nominee Kevin Warsh will tell lawmakers at his confirmation hearing Tuesday that the central bank’s autonomy to set interest rates is essential but always needs to be earned.

Warsh, in a prepared opening statement obtained by POLITICO, says monetary policymakers must make decisions based on “analytic rigor, meaningful deliberation, and unclouded decision-making.” But he also suggests President Donald Trump’s unyielding calls for lower interest rates do not threaten Fed independence.

“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,” Warsh will say. “Central bankers must be strong enough to listen to a diversity of views from all corners.”

The durability of the Fed’s insulation from short-term political pressures will be a central theme at Warsh’s hearing Tuesday. Trump has continuously pushed for rate cuts and has even threatened to fire Powell for not lowering them more dramatically.

In a subtle pushback against the idea that he would cut rates under any circumstance, Warsh will also underscore his commitment to keeping inflation in check, saying price stability is a mandate for the Fed “without excuse or equivocation, argument or anguish.”

“Inflation is a choice, and the Fed must take responsibility for it,” according to his prepared statement. “Low inflation is the Fed’s plot armor, its vital protection [against] slings and arrows. So, when inflation surges — as it has done in recent years — grievous harm is done to our citizens, especially to the least well-off.”

Warsh’s statement says the level of deference that the Fed is given on monetary policy does not apply to other areas, such as bank regulation, international finance and “stewardship of public monies.” And he argues that the Fed needs to “stay in its lane” and not get involved in fiscal and social policies outside of its statutory authority.

“In sum, I believe that monetary policy independence is earned — and better policy decisions crafted — by steering clear of distractions,” Warsh will say. “I am committed to ensuring that the conduct of monetary policy remains strictly independent. I am equally committed to working with the Administration and Congress on non-monetary matters that are part of the Fed’s remit. And I commit to accountability in all the Fed’s functions.”