Kevin Warsh, the nominee for the next Federal Reserve chairman, said remarks by President Donald Trump regarding the benchmark interest rate do not undermine the independence of monetary policy, ahead of his U.S. Senate confirmation hearing.
According to Reuters and Bloomberg, Warsh made the comments on Fed independence in his opening statement for the Tuesday confirmation hearing, which he submitted in advance to the U.S. Senate Banking Committee on Monday local time. "I do not view it as a particular threat to the independence of monetary policy operations when elected officials, such as the president, senators, or House members, express their views on interest rates," Warsh said. "The greatest threat to the Fed's independence comes when it ventures into areas of fiscal and social policy where it has neither the authority nor the expertise." The logic is that while a president voicing opinions on rates can be dismissed as a political act, the Fed's independence is instead damaged when it oversteps its mandate and provokes a political backlash.
Warsh also said, "I am equally committed to cooperating with the administration and Congress on non-monetary policy matters that fall within the Fed's authority," adding that "the Fed's independence is at the highest level in the conduct of monetary policy." He continued, "This level of independence does not extend to all the functions that Congress has mandated. At this moment, one of the most consequential in American history, I believe a reform-minded Fed can bring meaningful change for the American people." The remarks are interpreted as criticism that independence has not been upheld in other Fed duties outside monetary policy, such as bank supervision and oversight of the financial payments system.
The U.S. Senate Banking Committee will hold Warsh's hearing on Tuesday. Democratic lawmakers have signaled they will exert strong pressure, arguing that he could steer monetary policy in line with Trump's demands for rate cuts. The opacity of Warsh's reported asset disclosures is also expected to be a target of attack. Ahead of the hearing, Warsh disclosed assets totaling at least $200 million (approximately 290 billion won), but the specific holdings of the funds he has invested in were not made public.
There is also a possibility that the confirmation vote on Warsh could be delayed after the hearing. In particular, Republican Sen. Thom Tillis, a member of the Banking Committee, is strongly opposing Trump's attempts to infringe on Fed independence, clouding the prospects for confirmation. Tillis has said he will oppose Warsh's confirmation until the Department of Justice investigation into Fed Chairman Jerome Powell concludes. The current Senate Banking Committee consists of 24 members, with 13 Republicans and 11 Democrats. For a confirmation motion to advance after the hearing, a majority of the 24 members must vote in favor. Assuming all 11 Democrats vote against, just one Republican defection would halt the process. If the confirmation vote is delayed, Powell, whose term as chairman ends on the 15th of next month under the Federal Reserve Act, could continue to lead the Fed as acting chairman.