Inside Kevin Warsh’s opening statement: Inflation is a choice, independence is essential, and a couple of notable name drops |
Inside Kevin Warsh’s opening statement: Inflation is a choice, independence is essential, and a couple of notable name drops
In a matter of hours, former Fed Governor Kevin Warsh will appear before the Senate Banking Committee in his first real test as a would-be central bank chairman. Warsh, with the backing of President Trump, seeks to return to the U.S. Federal Reserve where he formerly served as a governor—something like a chief of staff—to Ben Bernanke between 2006 and 2011.In his opening statement to the committee today, Warsh will lay out his commitment to the Federal Reserve: Independence is essential, as is reform of the Fed. Inflation is also a choice, he will say, a choice which the Federal Reserve must be accountable for. (The full text of his statement is below.)Warsh could hardly stand before the committee without addressing the obvious concerns of the day: Whether he will prove to be, as critics fear, a puppet for the White House in the federally mandated independent central bank.
The New Yorker may ruffle feathers in his early remarks by thanking the president for his support (though one could argue not to do so would be a snub, and further contention the Fed could well do without). However, Warsh goes on to outline his commitment to independent monetary policy, saying it is “essential” in order for the central bank to work in the best interests of the nation as a whole.
Interestingly, Warsh also frames pressure from policymakers as a test of independence rather than a threat. Thus far, critics of the Oval Office have (with some justification) argued that President Trump’s campaign of pressure on current Federal Reserve Chairman Jay Powell goes beyond the bounds of expected requests for a lower base rate.
Markets have reacted negatively to Trump’s threats to fire Powell, seeing it as a direct attack on the critical independence of the Fed, and have watched warily as Trump has launched campaigns against governors such as Lisa Cook, and a criminal investigation into Powell over testimony related to renovations of the central bank buildings.
Warsh may soon be positioned in this very building in D.C., trading the Central Park views from the lofty office he occupied beside legendary investor Stan Druckenmiller for 15 years in favor of the widespread renovations on Capitol Hill at present.
While Warsh will steer well clear of the current court debate, he will make his stance clear that if policymakers wished to share opinions on monetary policy, they should: “I do not believe the operational independence of monetary policy is particularly threatened when elected officials state their views on interest rates. Central bankers must be strong enough to listen to a diversity of views from all corners, humble enough to be open-minded to new ideas and new economic developments, wise enough to translate imperfect data into meaningful insight, and dedicated enough to make judgments faithfully and wisely,” Warsh will say.
The Stanford graduate, who has been a critical friend to both the current central bank leadership and those before it, is also making a rod for his own back: “Inflation is a choice,” Warsh will state, “and the Fed must take responsibility for it.”
With affordability a buzzword in the U.S. at the moment, Warsh’s stance is bold in asserting that price rises are a decision or a compromise made by the Fed. Any criticism of prices being too high or above target (at present, inflation stands at 3.3%, comfortably ahead of the 2% target) is to be endured, Warsh will say: “Congress tasked the Fed with the mission to ensure price stability, without excuse or equivocation, argument or anguish.”
Warsh’s statement is also a keyhole into how his friends and mentors have helped shape his career. Warsh, 56, credits teachers and his fellow students in America’s public school system for “good influences in learning and in character.”
He also references his “mentor and friend” George Shultz, the former Secretary of State and Treasury, whom he met at Stanford, and Stan Druckenmiller, the legendary investor worth some $12.5 billion according to Bloomberg’s Billionaires Index.
“Like Secretary Shultz, Stan never once........