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Kevin Warsh, nominee for Fed Chair, attending the Senate confirmation hearing
Kevin Warsh, nominee for the Chair of the U.S. Federal Reserve (Fed), stated on the 21st (local time) that while presidents generally prefer interest rate cuts, he has no intention of simply following such directives.
At the Senate Banking Committee confirmation hearing that day, Warsh said, "Presidents tend to prefer interest rate cuts. The difference is that President Donald Trump expresses it very openly, without proxies or prevarication."
He continued, "But the independence of the Fed rests with the Fed. The Fed's leadership must decide for itself what is right," adding, "I do not believe that the independence of monetary policy is threatened just because elected officials express their views on interest rates."
This is interpreted to mean that even if President Trump, an "elected official" who nominated him as the next Fed Chair, pressures for interest rate cuts, monetary policy will be decided based on the Fed's independent judgment.
When asked if he would become President Trump's "human puppet" if confirmed, Warsh replied, "Absolutely not," adding, "It is an honor that the President nominated me for this position, and if I am confirmed as Fed Chair, I will act independently (not as a puppet)."
He stated, "I do not know why the President chose me," and "I never told the President anything like, 'If you give me the position, I will cut interest rates.'"
When asked if drastically cutting interest rates below 1% as demanded by President Trump would act as an inflation factor, Warsh avoided a direct answer, stating, "Unlike many of my colleagues (at the Fed), I do not believe in forward guidance. I do not think we should pre-announce future decisions."
Forward guidance is a tool used by central banks, including the Fed and the Bank of Korea, to reduce market uncertainty by providing advance information on the path of monetary policy.
Regarding the criticism that the Personal Consumption Expenditures (PCE) price index might exceed the target due to the Trump administration's tariff policies, he replied, "I do not agree."
Warsh referred to the concept of 'tyranny of the status quo' proposed by economist Milton Friedman, stating, "Status quo practices and policies are particularly harmful when the world is changing so rapidly," and "A reform-oriented Fed can bring real change to the American people."
He emphasized, "The data used to judge inflation is quite incomplete," and "One of the tasks the Fed must undertake is to utilize new understandings and ascertain the actual inflation in the economy through new data sources."
He then said, "We used the core PCE index, excluding food and energy. This was to roughly estimate the (price) situation. Now, there is no need for such rough estimations," and "What I am most interested in is the 'underlying inflation rate'."
To this end, he introduced, "One of the first reform tasks I want to pursue at the Fed is to initiate a data project. This involves the public and private sectors jointly conducting an assessment to survey one billion prices," explaining, "The change in the 500,000,001st price among them is inflation." This is interpreted to mean that the median value of a large-scale price survey, after removing extreme prices or temporary change factors, would be used as the benchmark indicator for inflation measurement.
Warsh stated, "I believe price stability is a change in prices that is so negligible that no one talks about it," and then added, "Economics is neither physics nor mathematics," stressing, "In economics, we should focus on the left side of the decimal point, not the right. We must focus on the big problems."
Warsh, who was nominated as the next Fed Chair on January 30, was once considered a 'hawk' in monetary policy, advocating for tightening, as evidenced by his resignation from the Fed board in 2011 in opposition to the second round of quantitative easing. However, more recently (before his nomination as Fed Chair), he has shown sympathy for President Trump's arguments for interest rate cuts.
Although current Fed Chair Jerome Powell's term expires next month, Warsh's appointment is contingent on passing a Senate confirmation vote.
Some observers believe that, separate from today's hearing, the confirmation vote might be delayed.
As the U.S. Department of Justice continues to show its intent to investigate Chairman Powell regarding issues of excessive spending on the renovation of the Fed building, Senator Thom Tillis (R-NC) of the Senate Banking Committee has stated that he will oppose Warsh's confirmation until the investigation into Chairman Powell is resolved.
The Senate Banking Committee, composed of 24 members, currently has a composition of 13 Republicans and 11 Democrats. If all Democratic senators and at least one Republican senator express opposition, the confirmation bill cannot pass the committee.
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