Warsh Commits to Monetary Policy Independence, Says Expressing President’s Views on Rates Not a Threat

Federal Reserve Chairman nominee Kevin Warsh will tell Senate lawmakers on Tuesday that setting interest rates independently is “essential” but that the chairman’s views on monetary policy do not threaten the central bank’s independence.

“Let me be clear: the independence of monetary policy is essential,” Warsh wrote in prepared remarks. “Monetary authorities must act in the interest of the nation…their decisions must be the product of analytical rigor, meaningful deliberation and unclouded decision-making.”

Warsh, who will give his opening statement to the Senate Banking Committee before being questioned, wrote that he does not believe that “the operational independence of monetary policy is particularly threatened when elected officials (presidents, senators or members of the House) express their views on interest rates.”

But President Trump has done much more than express his opinions. In speeches, press conferences, and Truth Social publications, he has demanded lower interest rates and lashed out at current Chairman Jerome Powell, mocking him as “too slow,” “too late,” “incompetent,” and “crooked.”

Read more: How much control does the president have over the Federal Reserve and interest rates?

His Justice Department opened a criminal investigation into whether Powell lied to Congress about the costs of renovating the Federal Reserve headquarters, a move Powell said was designed to pressure the central bank to lower rates.

In his prepared remarks, Warsh says he believes central bankers should be strong enough to listen to a diversity of views, but that the Fed’s independence depends largely on the Fed.

Warsh, 56, was governor of the Federal Reserve from 2006 to 2011 and previously served as special assistant to the president for economic policy and executive secretary of the White House National Economic Council. He is currently a visiting professor of economics at the Hoover Institution, a conservative think tank.

Largely absent from Warsh’s initial testimony is any mention of his current views on monetary policy. A review of his speeches during his tenure at the Federal Reserve and transcripts of policy meetings paint a picture of an inflation hawk by philosophy, but a data-driven practitioner. As governor of the Federal Open Market Committee, Warsh joined the committee’s consensus on every vote and never disagreed. That included three rate increases when he first took office in 2006.

More recently, Warsh has advocated for lower interest rates, arguing that the Federal Reserve should “drop its stagflation forecast” and predicting that AI will be a “significant” force that will boost productivity and reduce inflation, allowing for lower rates.

In his testimony, Warsh noted that Congress charged the Federal Reserve with the mission of ensuring price stability “without excuses or equivocations, arguments or anguish.” However, he wrote that inflation is a choice and the Fed must take responsibility for it, and called low inflation the Fed’s armor. Warsh warned that when inflation rises, it hurts the less fortunate and erodes purchasing power.

Read more: How the Fed’s rate decision affects your bank accounts, loans, credit cards and investments

However, he argued that the Fed’s independence refers to monetary policy and that the central bank is not entitled to the same independence in banking regulations or other matters. He argued that the Federal Reserve needs to “stay in its lane” and that its independence is most at risk when it veers toward fiscal or social policy.

“I believe that the independence of monetary policy is gained – and better policy decisions are made – by avoiding distractions,” he said. “I favor a clearer, cleaner correspondence between the powers and responsibilities of the Federal Reserve.”

Warsh said this is a moment of “major consequence” for the American economy, calling it perhaps the most important turning point in a couple of generations.

“I am committed to ensuring that the conduct of monetary policy remains strictly independent,” Warsh said. “I am equally committed to working with the Administration and Congress on non-monetary issues that are part of the Federal Reserve’s mandate. And I am committed to accountability in all functions of the Federal Reserve.”

Jennifer Schonberger is a veteran financial journalist covering markets, economics and investing. On Yahoo Finance he covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington politics and finance. Follow her on X @Jenniferismos and in instagram.

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