US Fed chair nominee says Trump will not control him

Kevin Warsh, Donald Trump’s pick to run the US Federal Reserve, used his confirmation hearing to draw a firm line: if confirmed, he said, the White House would not dictate his decisions. Facing pointed questions about his personal wealth and the Fed’s autonomy, Mr Warsh said he would safeguard the central bank’s freedom to set monetary policy without political interference.

A former Fed governor, Mr Warsh moved quickly to underscore what he called his commitment to “ensuring that the conduct of monetary policy remains strictly independent”.

He said he would “absolutely not” serve as Mr Trump’s puppet, pushing back on a charge critics have levelled as the president steps up pressure on the Fed to lower interest rates.

“The president 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,” Mr Warsh said.

The at times combative session before the Senate Banking Committee is a pivotal test for Mr Warsh as he seeks to replace Fed Chair Jerome Powell, whose term expires on 15 May.

Since returning to office last year, Mr Trump has repeatedly blasted Mr Powell for failing to cut rates more sharply.

The president told CNBC he would be disappointed if the next Fed chair did not move quickly to bring rates down, and he renewed his attacks on Mr Powell over expensive renovations at the central bank’s headquarters.

Mr Warsh argued that maintaining distance from politics is ultimately the Fed’s own responsibility.

“I do not believe that independence of monetary policy is threatened when elected officials state their views on rates,” he said.

Impasse?

All 11 Democrats on the Banking Committee last week called for Mr Warsh’s nomination process to be delayed until separate investigations involving Mr Powell and Fed governor Lisa Cook are completed.

Republican Senator Thom Tillis, a member of the Republican-led panel, has also pledged to block all Fed nominees – including Mr Warsh – until the Justice Department inquiry involving Mr Powell is settled.

Mr Tillis has pressed for the case involving Mr Powell to be dropped, saying the renovation overruns under scrutiny appeared justified.

With Republicans holding 13 seats on the 24-member committee, opposition from Mr Tillis could create a deadlock. Mr Warsh must first win committee approval before his nomination can move to the full Senate.

Jai Kedia, a research fellow at the libertarian Cato Institute, pointed to what he saw as “positives” in Mr Warsh’s testimony, including his grasp of the downsides of quantitative easing, the Fed’s bond-buying programme.

Still, he described the investigation into Mr Powell as an “unnecessary distraction” that could complicate the process of installing a new Fed chair.

Mr Warsh also said the central bank should avoid stepping into issues where it “has neither authority or expertise,” responding to questions about what he described as “partisan” matters such as climate policy or diversity, equity and inclusion.

Banking Committee Chairman Tim Scott said the moment offered an “opportunity to refocus” the Fed on its dual mandate of keeping prices stable while sustaining low unemployment.

Elizabeth Warren, the panel’s top Democrat, took the opposite view, warning that the investigations into Mr Powell and Ms Cook were meant to pressure Fed officials into carrying out Mr Trump’s wishes.

She warned against installing “a sock puppet” for the president at the Fed, while demanding more information from Mr Warsh about roughly $100 million in assets he has agreed to divest if confirmed.

Inflation pressures

Mr Warsh also took aim at how the Fed currently signals its thinking, saying policymakers in his view say too much about the direction of rates before formal meetings take place.

When asked whether he would maintain the longstanding practice of holding a press conference after every rate-setting meeting, Mr Warsh did not give a direct answer.

ING economist James Knightley told AFP that markets were closely assessing how far Mr Warsh’s views on rate cuts matched those of the president.

During his time as a Fed governor from 2006 to 2011, Mr Warsh was seen as more “hawkish” – favouring higher interest rates as a way to keep inflation in check.

Mr Knightley said Mr Warsh now appears to have shifted, embracing technology investment and AI, which some argue could expand the US economy’s capacity to grow without triggering the same level of inflation.

For the moment, though, rising petrol prices linked to war in the Middle East present an immediate obstacle to any push for lower rates.

At the hearing, Mr Warsh said he did not believe Mr Trump’s tariffs had driven inflation, a position that most Fed policymakers reject.