After months (years?) of President Trump voicing his desires for a new Chairman of the Federal Reserve to take over for Jerome Powell, he’s about to get his wish. Fed Chair nominee Kevin Warsh attended Senate Confirmation hearings this week in Washington. Warsh spoke of many planned changes in terms of the Central Bank’s recent approach while promising to maintain the independence of the Federal Reserve.

Change in Approach

Warsh spent a considerable amount of his hearing speaking to changes he would make in terms of the Federal Reserve’s overall approach – “regime change” as he called it.

One item he seeks to change is the Fed’s practice of providing future guidance, as well as their practice of communicating with the public. Warsh argued that the Fed’s practice of giving guidance may influence decision making. He advocates for fewer news conferences and fewer speeches by members of the Fed as well.

“Part of the reason the 2021–22 mistake was compounded is the Fed gives forward guidance — it tells the world what its dots will be, what its forecasts will be. Then the Fed, being human, holds onto those forecasts longer than it should. If the Fed were to wait until it gets into a meeting before making a decision, that incremental deliberation can keep the central bank from compounding its errors.”

He also commented on inflation drivers and its very measurement. He articulated a view that inflation comes largely from government actions (not higher wages/spending) .

“Inflation comes about when the government prints too much — meaning the central bank — and, broadly, the government spends too much.”

He also outlined an alternative measure to inflation (not the Fed’s typical Core CPE metric) and noted he plans to do a project with the Bureau of Labor Statistics to get a better system in place for compiling and analyzing price data

He also expressed dissatisfaction that the Fed only has two rather blunt tools for managing monetary – interest rates and its balance sheet (ie; buying and selling of treasures, ie: quantitative tightening and easing). While Warsh said he prefers using interest rates, he also said other tools are needed but stopped short of saying what those could/should be.

Retaining Independence

There has been much speculation that Warsh would succumb to pressures from President Trump and the administration (who have made no secret of their desire for lower rates). The Federal Reserve has always been an independent governing body (both in the US and in every other developed economy) and it’s essential that it continue to function as such.

Warsh was adamant that such independence would (and should) remain.

“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.”

As with many things in Washington, the timing and path of Warsh’s confirmation remains in flux at the moment. Powell’s term expires on May 15th but it is unclear as of now if Warsh will be confirmed by that time (or at all) as his confirmation hearing turned into a partisan escapade by the participating Senators.

The outcome of this nomination – and Warsh’s actions if he is in fact confirmed – stand to have a material impact on the Federal Reserve and the future monetary policy of the US. It’s worth staying tuned to what happens next.

Onward we go,