WASHINGTON – New US Federal Reserve chairman Kevin Warsh vowed to be “reform-oriented” as he was sworn in at the White House on May 22, with President Donald Trump insisting the central bank chief would be “totally independent”.
Mr Trump has exerted unprecedented pressure on the central bank to reduce interest rates, attempting to fire a Fed governor and pursuing a criminal probe against Mr Warsh’s predecessor, Mr Jerome Powell.
“To fulfil this mission, I will lead a reform-oriented Federal Reserve, learning from past successes and mistakes, both escaping static frameworks and models, and upholding clear standards of integrity and performance,” Mr Warsh said.
He called for central bankers to pursue their goals “with wisdom and clarity, independence and resolve,” adding that “inflation can be lower, growth stronger, real take-home pay higher, and America can be more prosperous” if they did so.
Mr Trump – who frequently criticised and insulted Mr Warsh’s predecessor, Mr Powell – praised Mr Warsh and said he wanted him to be fully independent, before urging the Fed chair to let the economy “boom”.
“Kevin understands that when the economy is booming, that’s a good thing. We want to stop inflation, but we don’t want to stop greatness,” Mr Trump said.
Mr Warsh has backed rate cuts in the past, even as the world’s largest economy faces inflation at a three-year high.
Justices Clarence Thomas and Brett Kavanaugh were among those in attendance on May 22, with the former administering the oath of office to Mr Warsh.
It is unusual for the chief of the Fed – an independent non-partisan body that sets monetary policy according to a dual mandate on inflation and employment – to be sworn in at the White House.
The last central bank chief to do so was Alan Greenspan in 1987 under president Ronald Reagan.
At his Senate confirmation hearing, Mr Warsh insisted that he would “absolutely not” be a puppet for the president.
Mr Warsh will take over a divided Fed facing high inflation – fuelled by the energy price surge that resulted from Mr Trump’s war on Iran – and a labour market showing signs of weakness.
The US central bank has a dual mandate to keep inflation to its long-term target of 2 per cent while also maintaining maximum employment.
US consumer inflation in April came in at 3.8 per cent, a three-year high, with American households battered by years of above-expected price increases since the Covid-19 pandemic.
At a Fed meeting in April, a majority of policymakers indicated that rate hikes may be necessary if inflation continues to remain above the Fed’s long-term target.
Mr Warsh has argued that productivity gains from artificial intelligence-led innovation will allow the US economy to grow rapidly without adding to inflation.
The US unemployment rate has remained relatively stable around 4.3 per cent for the last year. But job growth – often used as a proxy for economic activity – has see-sawed wildly between expansion and contraction from month to month.
That situation – high inflation and inconsistent job growth – has left the Fed in a potentially sticky situation of having to choose between its mandates.
“Kevin Warsh will not be able to deliver the rate cuts that the president wants,” said Mr David Wessel, senior fellow at the Brookings Institution.
“At some point, the president may grow impatient and will begin attacking Mr Warsh as he did Jerome Powell.”
Mr Warsh takes over at “a time of disruption and rebalancing in the overall authority of the president,” said Columbia Law professor Kathryn Judge, whose research focuses on central banking.
Potentially adding to Mr Warsh’s challenges will be the fact that Mr Powell has chosen to remain on the board as a member – an unusual but not unprecedented move for an outgoing chair.
Former Fed chairman Jerome Powell has said he will remain on the board of the US central bank.
PHOTO: REUTERS
Mr Powell cited threats to the Fed’s independence as the reason for his decision.
On May 22, White House economic adviser Kevin Hassett said he hoped Mr Powell would soon “step aside” so Mr Warsh could “have complete and easy control of the Fed.”
Fed Governor Lisa Cook’s challenge against her dismissal is pending before the Supreme Court. REUTERS
