Warsh's Undisclosed Investments Raise Questions on Influence Says Richards

Former Treasury official Kitty Richards, senior strategic adviser at the Groundwork Collaborative, said the financial disclosures of Kevin Warsh, the nominee to be chair of the Federal Reserve, leave some important questions unanswered because some of his holdings remain under wraps. Richards also spoke about questions around Fed independence, saying that Warsh's stances indicate he is more interested in the 'way the political winds are blowing' than the data.

Kevin Warsh, Donald Trump’s nominee to be the next chair of the Federal Reserve, vowed to protect the US central bank’s independence if he is confirmed to the role.

“I believe that monetary policy independence is earned — and better policy decisions crafted — by steering clear of distractions,” Warsh said in testimony at his confirmation hearing Tuesday, according to a copy of his remarks viewed by Bloomberg. “I am committed to ensuring that the conduct of monetary policy remains strictly independent,” he said. -- Kevin Warsh repeatedly pledged to act independently if he’s confirmed as the next Federal Reserve chair, rejecting Democratic concerns he would be a “sock puppet” for President Donald Trump, who continues to demand lower interest rates.

Warsh, in testimony before the Senate Banking Committee Tuesday, called for a slew of changes to the way the US central bank makes its decisions, including a new framework for dealing with persistent inflation and a new way of communicating with the public. But he provided few specifics and avoided answering questions about the near-term path of interest rates.

He also insisted the president never asked him to commit to any particular rate decision.

“The president nominated me for the position, and I’ll be an independent actor if confirmed as chairman of the Federal Reserve,” Warsh said, in response to questions from Democrats about how he planned to handle pressure from Trump. In her opening remarks, the senior Democrat on the panel, Senator Elizabeth Warren said Warsh would be Trump’s “sock puppet” at the Fed.

“Kevin Warsh hit all the right notes to reassure his supporters on the committee that he will push forward his idea of regime change at the Fed,” Joseph Brusuelas, chief economist at RSM. “He said nothing that will disrupt his path to being approved, if it makes it to the floor of the Senate.”

Warsh’s indication that the Fed should change a number of its current practices and even how it approaches policy decisions echo what he’s detailed in op-eds and speeches in the years since he left his position as a Fed governor in 2011. Some changes, such as the frequency of the post-meeting press conferences, can be made by the Fed chief alone. Others would take broad cooperation from the central bank’s 18 other policymakers.

Those other officials frequently speak publicly — something Warsh has said he disapproves of, but may not be able to change. Some larger moves, such as modifying or abandoning the quarterly economic forecasts and interest-rate projections that policymakers publish, may enjoy support among others.

“I do take him at his word and I would expect that will occur should he take the helm,” Brusuelas said of changes to Fed communication policies.

Key Test

Warsh’s ability to placate the White House while maintaining credibility on inflation with investors was seen as a key test for him heading into the hearing. Tuesday morning, Trump said he’d be disappointed if Warsh didn’t cut rates as soon as he took office.

Early in his testimony, Warsh blamed the Fed for allowing inflation to surge following the Covid-19 pandemic, and said quickly rising prices remain a problem for Americans. In response, he said the central bank needed a new framework for dealing with persistent price pressures, without offering more specifics.

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