Fed Chair nominee Kevin Warsh reportedly plans to commit to the Federal Reserve’s independence on monetary policy at his confirmation hearing tomorrow. This comes amid U.S. President Donald Trump’s push for more Fed rate cuts, which looks unlikely at the moment due to inflation concerns among FOMC members.
Kevin Warsh Commits To Fed Independence Amid Trump Pressure
According to a Bloomberg report, Kevin Warsh has committed to protecting the Fed’s independence if he succeeds Jerome Powell as the next Fed chair. “I am committed to ensuring that the conduct of monetary policy remains strictly independent,” he said in remarks for his confirmation hearing before the Senate Banking Committee.
However, the Fed chair nominee also noted that monetary policy independence is earned and that the U.S. central bank can make better policy decisions when it steers clear of distractions. The Fed’s independence has become a major talking point over the last year, with President Trump urging Powell to lower rates on several occasions.
The highlight of this saga came when the Department of Justice (DOJ) opened an investigation into Powell. In response, the Fed chair claimed that the DOJ probe was due to the Fed’s refusal to lower rates to meet the president’s preference.
Meanwhile, since Kevin Warsh’s nomination, there have been debates about whether the Fed chair nominee will push for lower interest rates in line with Trump’s calls. The former Fed governor had gained a reputation as an inflation hawk during his tenure, but appears to have softened his stance on monetary policy.
It is worth noting that the Fed chair also said in his remarks that he doesn’t believe that comments from elected officials about interest rates threaten the operational independence of monetary policy. He indicated that Fed independence will automatically follow if the U.S. central bank gets inflation right.
Fed Unlikely To Lower Rates This Year
According to CME FedWatch data, market participants currently expect the Fed to hold interest rates steady throughout the year, even as Kevin Warsh is on course to succeed Powell. Trump had, at the time of nominating Warsh expressed confidence that he would lower rates.
However, the U.S.-Iran war has made a rate cut this year unlikely, especially with many Fed officials signaling support for a wait-and-see approach. In line with this approach, the Fed is likely to hold rates steady at the upcoming April FOMC meeting, marking the third consecutive meeting at which it has paused rate cuts.
Meanwhile, upon Kevin Warsh’s confirmation, President Trump may still find it hard to get the Fed to lower rates, as Powell has signaled that he may remain on the board at least until the DOJ probe ends. Powell remaining on the board means that Trump won’t have a majority on the Fed board.
