President Trump’s nominated candidate for the Chairman of the Federal Reserve (Fed), Kevin Warsh, is set to attend a confirmation hearing at the Senate Banking Committee on Tuesday, April 21. In the pre-released testimony, Warsh emphasized that the Fed’s independence depends on the institution’s own performance and pledged to ensure strict independence in implementing monetary policy.
Warsh advocates for the Fed to “stay in its lane” and avoid getting involved in areas where it lacks authority and expertise. He stated, “Simply put, the Fed’s independence largely depends on the Fed itself. The Fed must stay in its lane. When it gets involved in fiscal and social policy areas where it has neither authority nor expertise, its independence faces the greatest risk.”
Addressing concerns about political pressure, Warsh stated that he does not believe that elected officials expressing views on interest rates will threaten the Fed’s operations. He believes that central bank officials must be strong enough to listen to diverse opinions while also being humble enough to maintain an open attitude towards new ideas and economic developments.
Warsh further differentiated the levels of independence of the Fed’s different functions. He believes that independence should be at its peak when it comes to “executing monetary policy,” but in areas such as bank regulation, public fund management, or international finance, Fed officials do not enjoy the same “special respect.”
He criticized the Fed’s past expansion into areas such as climate change and social policy as an overreach and emphasized that “the Fed should not act as a Swiss Army knife for the U.S. government, nor should it act as an appeals court for matters that should be debated and decided elsewhere.”
Regarding inflation, Warsh believes that maintaining price stability is the Fed’s core mission that cannot be avoided. He pointed out that low inflation is key to protecting the Fed from external criticism, as once inflation spirals out of control, the public will lose confidence in the economic governance system. He stated unequivocally, “Inflation is a choice, and the Fed must be accountable for it.”
In order to drive institutional reform, Warsh proposed establishing a new “Fed-Treasury Agreement” to enhance transparency regarding the Fed’s balance sheet size and the schedule for issuing U.S. Treasury securities. He also advocated for reducing the current approximately $70 billion balance sheet and hoped to return the Fed to its past role of mostly observing, intervening only in emergency situations.
Despite Warsh outlining a reform blueprint, the path to his confirmation still faces political challenges. Republican Senator Thom Tillis threatened to block the nomination from proceeding to a full vote until the investigation into current Chairman Jerome Powell is completed. Meanwhile, Democratic Senator Elizabeth Warren expressed concerns about whether Warsh can maintain independence rather than becoming a spokesperson for the executive branch.
If Warsh fails to pass confirmation smoothly, Powell will legally serve as the “Acting Chairman” until a successor is appointed.