Kevin Warsh’s Senate hearing: What to expect
Kevin Warsh is a former member of the Federal Reserve Board of Governors.
Courtesy: Hoover Institution
Federal Reserve chairman candidate Kevin Warsh traveled to Capitol Hill on Tuesday to convince lawmakers that he could make a presidential push for lower interest rates while remaining free of political constraints on policymaking.
In a highly anticipated hearing before the Senate Banking Committee, the former Fed chairman will be questioned on a variety of topics, from monetary policy to banking regulations to his own complicated personal finances.
Perhaps none will be more important than defining the boundaries between the Fed’s decision-making and its policy.
“There’s a difficult communication question,” said Bill English, a professor at the Yale School of Management and the Fed’s director of monetary affairs from 2010-15, coinciding with Warsh’s time there.
“I think the way to deal with that is to openly express his views that rates could probably go lower, maybe quite a bit lower,” English said. “But at the same time, when asked directly about independence, make it clear that he values independence. He thinks independence is important and that a less independent Fed in the medium and long term would be a bad thing for the country.”
Political independence has been a key question surrounding the search for current Chairman Jerome Powell’s successor.
Warsh’s views on independence
Warsh made remarks he planned to present to the committee at the start of the hearing. He gave conditional approval to the Fed’s independence.
“So let me be clear: the independence of monetary policy is essential. Monetary policy makers must act in the country’s interests, and their decisions must be the product of analytical rigor, meaningful negotiation and unclouded decision-making,” he said in the prepared text.
However, he said he did not believe independence would be in jeopardy if the central bank’s actions were questioned by elected leaders, adding that “the Fed should stay on its path” and “not deviate from fiscal and social policies for which it has neither authority nor expertise.”
Warsh will likely face a barrage of questions about his political allegiance to President Donald Trump, who has made no secret that his desire to lower interest rates is a litmus test for his candidate. Trump nominated Warsh in late January after a lengthy search process that included nearly a dozen candidates.
Congressional Democrats, including Sen. Elizabeth Warren, D-Mass., are expected to push the candidate on independence and raise questions about his finances.
If confirmed, Warsh would become the richest Fed chairman in the central bank’s 113-year history. Statements made ahead of the hearing suggest senior officials will have to divest significant amounts of shares to comply with what have become strict Fed rules on where they are allowed to invest.
Warren We met with Warsh on Thursday and had “deep concerns that he would become Donald Trump’s sock puppet if confirmed.” He also claimed that Warsh failed to disclose “more than $100 million in assets.”
Regardless of concerns about Warsh’s views, it could be some time before the nomination moves out of committee.
Sen. Thom Tillis, R-N.C., has vowed to keep him as a nominee until the U.S. Attorney’s Office in Washington, D.C., investigates renovations at the Fed headquarters. The court quashed U.S. Attorney Jeanine Pirro’s subpoena against Powell, but she vowed to appeal.
White House officials are confident that Warsh, where Republicans hold a 12-10 advantage, will eventually win the committee’s approval.
“My expectation is that once everyone sees him at the hearing and sees how slick on his feet he is, how knowledgeable he is about the Fed, and how good his ideas are about returning the Fed to a non-partisan place, it will be hard to resist voting ‘yes,'” National Economic Council Director Kevin Hassett said on CNBC on Monday. he said.
building consensus
Once in office, Warsh will chair the Federal Open Market Committee, a panel of officials who have expressed concerns about the next steps in monetary policy. While markets expect the committee to remain on hold for the rest of the year, officials themselves are still signaling a cut, and Warsh has also voiced support for lower rates.
San Francisco Fed President Mary Daly said last week that Warsh “will come with an idea of what he wants to think about and do, and then the economics will reveal what we’re actually working on.” “You work with the economy you have and plan for the economy you need to achieve.”
As for his approach beyond rate-setting, Warsh called last year: He touted regime change at the Fed and claimed there was a “credibility deficit” that current officials wanted to fix.
English, the former Fed official, said his experience with Warsh was that of being able to work with others, a quality needed at the consensus-oriented central bank.
“He wasn’t someone who was really difficult for other policymakers or staff or anyone else,” English said. “So I’m not sure he’s going to go in and try to shake things up right away without mobilizing other policymakers. He’ll have to present arguments and make his case reasonably to get them to act.”
