WASHINGTON (AP) — President Donald Trump’s nominee to chair the Federal Reserve said Tuesday that he never promised the White House that he would cut interest rates, even as the president renewed his calls for the central bank to do so.
“The president never once asked me to commit to any particular interest rate decision, and nor would I agree to it if he had,” Kevin Warsh said under questioning by the Senate Banking Committee. “I will be an independent
actor if confirmed as chair of the Federal Reserve.”
Warsh’s comments came just hours after Trump, in an interview on CNBC, was asked if he would be disappointed if Warsh doesn’t immediately cut rates, and said, “I would.”
The comments underscore the challenge faced by Warsh, 56, a financier and former top Fed official whom Trump named in January to replace the current Fed chair, Jerome Powell. Democrats on the committee accused Warsh of flip-flopping on interest rates over the years, supporting higher interest rates under Democratic presidents and advocating rate cuts during Trump's time in office. Investors are watching the hearing closely to see how Warsh balances Trump’s demands with worsening inflation, as the war in Iran pushes up the price of gasoline.
Higher inflation typically leads the Fed to raise rates, or at least keep them unchanged, rather than cut them. When the Fed changes its key rate, it can affect mortgages, auto loans, and business borrowing.
Warsh told the Senate Banking Committee that one of his top goals would be to fight inflation, which remains elevated at 3.3% annually.
“Congress tasked the Fed with the mission to ensure price stability, without excuse or equivocation, argument or anguish,” Warsh said. “Inflation is a choice, and the Fed must take responsibility for it.”
Warsh would be in a tough spot if confirmed. Inflation is worsening, making it much harder for the Fed to implement the interest rate cuts Trump so desperately seeks. The conflict could also slow the economy as well as hiring. And if Warsh ultimately becomes chair, he may very well find his predecessor, Powell, still sitting on the Fed’s governing board, an uncomfortable arrangement that hasn’t occurred since the late 1940s.
A former top official at the Fed and a wealthy investor, Warsh, faced a range of tough questions at the hearing Tuesday. Democrats have raised the issue of what they see as a lack of transparency regarding some of his vast financial holdings, which total more than $100 million, according to a recent disclosure.
Warsh said the Fed's political independence is “essential,” and that the central bank wasn't threatened when “elected officials — presidents, senators, or members of the House — state their views on interest rates." Trump has repeatedly urged Powell to cut the Fed's key rate from its current level of about 3.6% to as low as 1%, a view almost no economist shares.
Sen. Elizabeth Warren, a Massachusetts Democrat, said that Trump has not just stated his opinions on rates, but has sought to fire a Fed governor and is investigating Powell for recent testimony about a building renovation.
“The Senate should not be aiding and abetting Donald Trump’s illegal takeover of the Fed by installing his chosen sock puppet as chair,” she said.
While the long-delayed hearing is a necessary step for Warsh, it's not clear when the committee may even be able to vote on his nomination. Sen. Thom Tillis, a North Carolina Republican, said Warsh's credentials are “impeccable” but stood by his position that the investigation into Powell must be dropped before he will vote for him.
“We have got to get rid of this investigation,” Tillis said, “so I can support your nomination.”
Sen. Tina Smith, a Democrat from Minnesota, told reporters Monday that there is "a majority of the committee that’s not going to move this nomination forward, especially while this sham of a criminal investigation is going on. ... It feels a bit like we’re going through the motions when we really have not addressed the fundamental challenges that this nomination has.”
The turmoil could make a potential transition from Powell to Warsh an unusually turbulent one for the world’s most pivotal central bank, which has historically experienced smooth transfers of power. Should the change in leadership prove particularly bumpy, it could unnerve markets and lift longer-term interest rates.
Powell's term as chair ends May 15. He said last month that he would remain as chair until a successor is named. Powell also is serving a separate term as a member of the Fed's governing board that lasts until January 2028. Fed chairs typically leave the board when their terms as chair end, but Powell said last month he would remain on the board, even if a new chair is approved, until the investigation is dropped.
Trump said he would fire Powell if he attempted to remain at the Fed. Yet Trump's previous attempt to remove a Fed governor, Lisa Cook, has been tied up in courts. During oral arguments in January, a majority of justices on the Supreme Court appeared to lean toward letting Cook keep her job.
