Federal Reserve Chair Kevin Warsh testified before the House Financial Services Committee on the 14th (local time), declaring the Fed an independent central bank whose independence was granted by Congress. Responding to a direct question about working for President Donald Trump, Warsh emphasized the Fed's institutional independence and stated he would continue doing his job. The testimony occurred amid concerns about potential political pressure on monetary policy in a highly polarized environment.
Warsh Defends Fed Independence Against Political Pressure Questions
When asked directly whether he works for Donald Trump with a request for a yes-or-no answer, Warsh stated: "We are an independent central bank. We value that independence very much, and that independence was granted to us by Congress." Addressing potential criticism from President Trump regarding interest rate policy, Warsh declined to discuss hypothetical scenarios, emphasizing that the Supreme Court has ruled the Fed and its conduct of monetary policy are independent. "I will continue to do my job," he stated.
On operating monetary policy in an extremely polarized and politicized environment, Warsh acknowledged: "There is no doubt that there is a lot of politics outside the four walls of the Fed." However, he set a clear standard: "My goal is that there should be absolutely no politics inside the central bank. If there is politics inside, we will eliminate it."
Fed Chair Rebuts Transparency Criticism on Communication Reforms
Responding to criticism that the Fed has reduced communication and operates task forces with unclear transparency, Warsh defended his approach: "I think I have shown a firm commitment to independence and a firm commitment to reform. Both are equally important, and I will definitely practice both." He clarified the purpose of communication changes: "The purpose of changing communication is never to hide something."
Warsh connected the communication reforms to the Fed's inflation record: "The fact that inflation has exceeded the Fed's target for the past 63 months, maybe 64 months, shows that it is very important to seriously consider reforms, including communication." He stated the singular purpose of communication changes is "to conduct monetary policy correctly."
Warsh Assesses Dual Mandate as Non-Conflicting Goals
On price stability, Warsh defined the objective as creating confidence "to the extent that people no longer need to worry about or talk about price fluctuations." He noted this aligns with lower long-term Treasury yields and more affordable mortgage rates.
Addressing the Fed's dual mandate of price stability and full employment, Warsh stated the two goals "do not conflict with each other" and are not a matter of choosing one over the other. "The more we achieve low and stable prices, the less people worry about inflation, the more employers will try to hire more workers," he projected.
Warsh assessed the current labor market as "appearing to be in a fairly good balance," while noting "there is still work to be done on the inflation side."
FAQ
What did Fed Chair Warsh say about Fed independence in his House testimony?
Kevin Warsh testified on the 14th (local time) that the Fed is an independent central bank whose independence was granted by Congress. He stated his goal is to ensure absolutely no politics exists inside the central bank and that he will continue doing his job regardless of external political pressure.
Why is the Fed changing its communication approach according to Warsh?
Warsh stated the purpose of communication changes is solely to conduct monetary policy correctly, not to hide information. He cited the fact that inflation exceeded the Fed's target for 63-64 months as evidence that reforms including communication changes are necessary.
How does Warsh view the Fed's dual mandate of price stability and full employment?
Warsh stated the two mandates do not conflict and are not a matter of choosing one over the other. He explained that achieving low and stable prices will reduce inflation concerns and encourage more employers to hire more workers, while assessing the current labor market as fairly well-balanced with remaining work needed on inflation.
