USA: Fed Chair Nominee Warsh Says He Is Not Pre-Committed to Any Policy Decision and Calls for a New Inflation Framework
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Fed Chair nominee Kevin Warsh reaffirmed his commitment to Federal Reserve independence during his Senate Banking Committee confirmation hearing, explicitly stating he is not pre-committed to any specific policy decisions. Warsh advocated for a slow, methodical reduction of the central bank's balance sheet, emphasizing the need to communicate plans to markets in advance and coordinate closely with the Treasury Department.
He argued for an overhaul of the monetary framework and communication strategy, suggesting officials communicate too frequently. While noting the inflation trajectory is improving, Warsh stressed the Fed has a narrow window to address lingering effects of past policy errors. He called for a new inflation framework that de-emphasizes core PCE, arguing that trimmed-mean and median inflation metrics better capture underlying price pressures.
This argument is supported by data showing Dallas Fed trimmed-mean PCE at 2.3% year-over-year and 2.0% annualized over six months, and Cleveland Fed median PCE at 2.8% and 2.2%, both significantly below core PCE of 3.0% and 3.4%. Warsh expressed optimism that artificial intelligence is bolstering the economic supply side and will deliver substantial productivity gains, noting the labor market appears close to full employment. Politically, Senator Tillis stated he would oppose confirmation until a Department of Justice investigation involving Chair Powell concludes, potentially stalling the nomination.