Fed pick faces skepticism over claim of independence from Trump.
- The San Juan Daily Star
- 2 hours ago
- 4 min read
By COLBY SMITH
Kevin Warsh, President Donald Trump’s pick to lead the Federal Reserve, asserted repeatedly at a combative confirmation hearing earlier this week that he would not cut interest rates simply because Trump wanted him to, pledging to be “strictly independent” if confirmed for one of the world’s most powerful economic positions.
In sometimes testy exchanges before the Senate Banking Committee, Warsh, 56, sought to dispel doubts around his credibility, saying Trump had “never asked me to predetermine, commit, fix, decide on any interest rate decision in any of our discussions, nor would I ever agree to do so.”
He was repeatedly asked if he would function as a “sock puppet” for Trump, who has demanded lower rates from the Fed and attacked the institution’s top leadership for failing to cut them aggressively enough. Just hours before the hearing, Trump said in an interview with CNBC that he would be “disappointed” if Warsh did not reduce borrowing costs once confirmed as Fed chair.
Warsh, who served as a Fed governor from 2006 to 2011, said he would remain independent. In his opening statement, he said that central bankers must be “strong enough to listen to a diversity of views from all corners, humble enough to be open-minded to new ideas and new economic developments, wise enough to translate imperfect data into meaningful insight and dedicated enough to make judgments faithfully and wisely.”
But as several lawmakers on Tuesday noted, Trump’s broadsides against the Fed have gone well beyond just verbal arguments. He is in the midst of trying to remove Lisa Cook, a governor appointed by the Biden administration, from her position over unsubstantiated allegations of mortgage fraud. The Supreme Court has yet to rule on the case, but so far the justices seem wary about allowing Cook’s ousting to hold given, concerns about the Fed’s independence.
The Justice Department has also initiated a criminal investigation into the current chair, Jerome Powell, and his handling of renovations at the Fed’s headquarters in Washington, which has thrown a wrench into Warsh’s ability to get confirmed before Powell’s term as chair ends May 15.
That’s because Sen. Thom Tillis of North Carolina, a Republican on the Banking Committee, has vowed to block any attempt to confirm a new Fed chair until the legal threats against Powell are resolved.
While Tillis said he believed Warsh was qualified for the job, he has blasted the investigation as a blatant attempt to coerce Powell into lowering rates, undermining the Fed’s independence and confirming the politicization of the Justice Department.
“The problem that I have here is that we had some U.S. attorney with a dream, or assistant U.S. attorney, thinking it would be cute to bring Chair Powell under an investigation just a few months before the position was going to be open,” Tillis said Tuesday.
“Let’s get rid of this investigation so I can support your nomination,” he added.
Trump on Tuesday showed no indication that he wanted the Justice Department to drop the investigation, despite numerous legal setbacks. “You have to find out why a thing like that could happen,” he said of the central bank’s renovations. “I’m afraid Kevin will have to have an office next to me in the White House, because that building is not going to be done.”
Powell has said he will stay on as chair on a temporary basis if Warsh is not confirmed by May 15. He has yet to disclose whether he will stay on as a governor, as he can do until 2028.
Warsh also came under fire from Democrats, who questioned his shifting views on inflation. While at the Fed over a decade ago, Warsh was known as an inflation hawk, who often argued against lowering rates for fear that it could stoke price pressures.
While campaigning to be chair, Warsh embraced the need for rate cuts, arguing that there was a path for lower borrowing costs because of his plans to shrink the Fed’s holdings of Treasury bonds and mortgage-backed securities. That would likely lead to higher long-term rates that then could be offset by lowering the short-term rates that the Fed controls, he has said. Warsh also argued that higher productivity from the boom in artificial intelligence could unleash higher growth without stoking inflation, which could give the Fed more space to lower rates than otherwise would be the case.
Warsh reiterated those arguments Tuesday, despite some pushback from lawmakers, including Sen. John Kennedy, R-La., who described promises of AI-driven productivity gains as “hype” from people trying to drum up interest for their coming initial public offerings.
Warsh repeatedly made clear Tuesday that he views any overshoot of inflation as the Fed’s fault, as he criticized the central bank for missing its 2% inflation target since the pandemic.
“That’s an indication that the Fed missed its mark, and we are still dealing with the legacy of the policy errors in 2021 and 2022,” said Warsh, referring to a period in which policymakers were slow to respond to mounting price pressure caused by gummed-up supply chains and a series of economic rescue packages from the government. “Once you let inflation take hold in the economy, it’s more expensive and harder to bring it down.”
On Tuesday, he pushed back on the idea that tariffs had worsened inflation and said the Fed needed “regime change in the conduct of policy. It means a new and different inflation framework.”