Quick overview

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Kevin Warsh, Donald Trump’s nominee to lead the Federal Reserve, placed responsibility on the central bank itself for growing doubts about its independence—criticisms that have also come from the White House. He is set to testify before the U.S. Senate this Tuesday.

Warsh will appear before the Senate Banking Committee for his confirmation hearing, where he is expected to state that he is “committed to ensuring that the conduct of monetary policy remains strictly independent,” according to prepared remarks released Monday in the U.S. press.

In his prepared remarks, he also noted: “I am equally committed to working with the Administration and Congress on non-monetary matters that fall within the Federal Reserve’s responsibilities.”

At another point, Warsh argued that the Fed’s independence “reaches its highest level in the operational execution of monetary policy.” However, he added that “this degree of independence does not extend to the full range of responsibilities assigned by Congress.”

He further stated that U.S. monetary policymakers are not entitled to the same “special deference” in their management of public funds, bank regulation and supervision, or in areas affecting international finance.

Inflation backlash

Warsh also argued that the Fed’s independence is under strain because it has failed to fully deliver on its congressional mandate of price stability.

“Low inflation is the Fed’s armor,” he said. “Therefore, when inflation surges—as it has in recent years—it causes serious harm to our citizens, who may also lose faith in our system of economic governance, raising doubts about whether monetary independence is truly as beneficial as claimed.”

“Inflation is a choice, and the Fed must take responsibility for it,” Warsh added, reiterating his criticism of policymakers for attributing the post-pandemic inflation spike to supply chain disruptions.

A push for reform?

Warsh, who has been nominated to replace Jerome Powell, also pledged to pursue reforms within the central bank. He warned that large institutions’ tendency to cling to the status quo can be “harmful” in a rapidly changing world.

“At a moment that will rank among the most consequential in our nation’s history, I believe a reform-oriented Federal Reserve can make a real difference for the American people,” he said.

Warsh, who served as a Fed governor from 2006 to 2011, devoted much of his remarks to reiterating long-standing criticisms of the central bank since his departure.

He also argued that the Fed should “stay in its lane” rather than venture into fiscal or social policy, referencing past research into issues such as the economic impact of climate change and the pursuit of “inclusive” full employment.