Warsh, a former Fed governor, was quick to emphasise his commitment to “ensuring that the conduct of monetary policy remains strictly independent.”
He added that he would “absolutely not” be Trump’s puppet – an accusation some critics have lobbed at him amid the president’s intense pressure on the Fed to cut 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,” Warsh said.
He also took aim at the Fed for missing its inflation target since the Covid-19 pandemic, warning that inflation becomes tougher to curb once it takes hold.
The occasionally tense hearing before the Senate banking committee marks a key hurdle Warsh must overcome to succeed Fed chair Jerome Powell when his term ends on May 15.
Trump, since his return to office last year, has severely criticized Powell for not slashing rates more aggressively.
The president told CNBC on Tuesday he would be disappointed if the new Fed chair did not swiftly lower rates, and again took aim at Powell over costly renovations at the bank’s headquarters.
Warsh insisted that it is up to the Fed itself to stay free from political influence.
“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 urged for a delay in Warsh’s nomination proceedings until separate investigations into Powell and Fed governor Lisa Cook are closed.
Republican senator Thom Tillis, who sits on the panel led by his party, has also vowed to block all Fed nominees – including Warsh – until the justice department probe involving Powell is resolved.
Tillis urged Tuesday for the investigation on Powell to be dropped, saying that renovation cost overruns it probed appeared legitimate.
With 13 Republicans on the 24-member committee, Tillis’ vote against Warsh’s confirmation could set up an impasse. Warsh needs to be confirmed by the panel to advance to a full Senate vote.
Research fellow Jai Kedia of the libertarian Cato Institute flagged “positives” from Warsh’s hearing like his understanding of the negative effects of quantitative easing, the Fed’s asset-buying programme.
But he called the probe on Powell an “unnecessary distraction” that potentially hampers the appointment of a new Fed chief.
Warsh added Tuesday that the central bank should not enter areas where it “has neither authority or expertise,” when asked about “partisan” policies like climate issues or diversity, equity and inclusion.
Banking committee chairman Tim Scott said there is an “opportunity to refocus” the Fed on its dual mandate of price stability and low unemployment.
But Elizabeth Warren, the top Democrat on the panel, cautioned that probes on Powell and Cook were designed to pressure Fed policymakers into doing Trump’s bidding.
She warned against having “a sock puppet” of the president put in charge, while pressing him for more details on some US$100 million in assets that he agreed to divest if confirmed.
Inflation pressures
Warsh also expressed some criticism of the Fed’s current approach to communicating policy, saying he thinks officials speak too much about where rates should be ahead of meetings.
Asked if he would continue the long-held practice of holding a press conference after each rate-setting meeting, Warsh did not answer directly.
ING economist James Knightley told AFP that analysts were watching for how closely Warsh aligned with the president on rate cuts.
During Warsh’s 2006-2011 Fed governor tenure, he was considered more “hawkish” – favouring controlling inflation by keeping interest rates higher.
He appears to have shifted his stance, advocating for tech investments and AI, which some believe can change the US economy’s ability to grow without generating the same degree of inflationary pressures, Knightley said.
For now, however, higher gasoline prices due to war in the Middle East prove an immediate challenge to rate cuts.