Kevin Warsh, President Donald Trump’s pick to chair the Federal Reserve, has a message for senators who will decide whether he is fit to steward America’s monetary policy: Political pressure is not a threat to the central bank.
The insulation of the Federal Reserve from short-term political pressure is expected to be the defining issue of Warsh’s confirmation hearing Tuesday before the Senate Banking Committee.
Warsh could be facing an uphill battle. He has to convince the panel of lawmakers that he will not yield to the president’s repeated calls for lower interest rates, as Trump has been known to do.
Trump has made no secret of his belief that the White House should have greater control over the nation’s monetary policies. The president has mounted a pressure campaign against current Federal Reserve Chair Jerome Powell over his refusal to slash interest rates. His attacks include multiple threats to fire Powell and a now-dismissed Justice Department subpoena that was part of the administration’s effort to pursue a criminal case against him.
Warsh, a favorite among Republican circles and the son-in-law of billionaire Trump donor Ronald Lauder, will need to persuade lawmakers that he is not a reflection of the president who appointed him.
In prepared remarks viewed by MS NOW, Warsh outlined how he plans to navigate that task. The former Morgan Stanley investment banker defended the central bank’s critical independence and cast the current climate as a “time of great consequence for the nation’s economy.”
“The Fed must stay in its lane,” Warsh wrote in his remarks. “Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise.”
In his remarks, Warsh noted that it is crucial for the central bank to maintain its independence and separate political pressure from monetary policy. But, he added, elected officials who opine on interest rates and other policy decisions do not pose a threat to the central bank’s 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 opinions on interest rates,” Warsh said in the remarks.
While that position may offer an excuse for Trump’s repeated interest rate demands, it most certainly will draw scrutiny from members of the Senate Banking Committee.
After the Justice Department subpoenaed Powell and accused him of knowingly misleading Congress about the ongoing $2.5 billion building renovation project at the Fed’s Washington headquarters, retiring Republican Sen. Thom Tillis of North Carolina vowed to block the confirmation of any Fed chair nominee until the DOJ dropped its investigation.
Tillis, a key vote on the banking committee, was joined by Sen. Kevin Cramer, R-N.D., in expressing concern over the motivations behind the probe. Sen. Elizabeth Warren, D-Mass., the committee’s highest-ranking Democrat, called on her Republican colleagues to block Warsh’s nomination.
A federal judge quashed the investigation, which had become central to Trump’s public smear campaign against Powell, in March. In April, the same judge denied the Trump administration’s bid to revive the subpoenas he dismissed, writing that “the Government served these subpoenas on the [Federal Reserve] Board to pressure its Chair into voting for lower interest rates or resigning.”
Though the investigation has ended, it has left behind heightened tensions on the banking committee ahead of Tuesday’s hearing. The panel, which oversees Fed nominations, has a narrow 13-11 Republican majority.
Warsh previously served as a Federal Reserve governor in the early 2000s, after being nominated by then-President George W. Bush. A rate-cut-friendly economist, Warsh in his remarks jabbed at the Fed’s expansion of control over the levers of monetary policy that followed the 2008 financial crisis.
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