During a dinner in Washington on January 31, US President Donald Trump jokingly remarked that if his nominee for the new Federal Reserve Chair, Kevin Warsh, did not lower interest rates, he would sue him.
According to The Wall Street Journal, this was Trump's first attendance at the exclusive, closed-door "Alfalfa Club" dinner as President, where he was the featured keynote speaker for the event.
Attendees at the dinner also included former US President George W. Bush, Supreme Court Chief Justice John Roberts, Kentucky Republican Senator Mitch McConnell, Amazon founder Jeff Bezos, as well as current Fed Chair Jerome Powell, Warsh himself, and several current and former members of Congress.
Sources present revealed that Trump told the gathering of business leaders and Washington elites that he selected Warsh because the individual appeared to be a perfect fit for the position.
He quipped that if Warsh did not lower interest rates, he would be sued.
Later that day, when asked about these comments aboard Air Force One, Trump stated: "It was just dinner banter." He indicated that he had not sought any promises from Warsh regarding the nomination, adding, "I guess I could have, but I didn't."
Jerome Powell's term as Fed Chair is set to expire in mid-May. Trump has consistently pressured Powell to cut rates and has repeatedly criticized him.
Trump officially nominated Warsh for the new Chair position on January 30. The nomination still requires approval from the Senate. The 55-year-old Warsh previously served as a Federal Reserve Governor, acted as an economic advisor in the George W. Bush administration, and worked as an investment banker at Morgan Stanley.
The Financial Times noted that Warsh's nomination has prompted a re-examination of the Federal Reserve's role.
The Fed Chair is supposed to operate independently of the President's personal wishes. However, some prominent former central bank officials, such as Raghuram Rajan, Professor at the University of Chicago and former Governor of the Reserve Bank of India, believe the Fed may have overstepped into areas typically handled by the Treasury and Congress.
Rajan told the Financial Times: "How long can the situation persist where the government requires significant financing, and the Fed is massively buying US Treasury bonds, while this operation is still self-deceptively called monetary policy rather than fiscal financing?"
Bloomberg analysis suggests that Warsh becoming a candidate for Fed Chair does not necessarily mean an imminent shift in Fed policy. The benchmark interest rate is determined by a majority vote of the 12-member Federal Open Market Committee (FOMC), which comprises the seven Fed Governors and five Presidents selected from the 12 regional Federal Reserve Banks.
To guard against an unexpectedly sharp slowdown in the US labor market, the Fed cut interest rates three times last year. In December, Trump told The Wall Street Journal that he believed interest rates should be lowered to 1% or even lower.
This week, the Fed kept rates unchanged in the range of 3.5% to 3.75%, significantly higher than Trump's desired target. Subsequently, Trump launched a fierce attack on Powell. On social media, he claimed Powell was "hurting our country and our national security" and labeled the Fed Chair a "fool."
Sources at the dinner also revealed that Trump's speech touched upon the possibility of bombing Iran again. Trump later stated on Air Force One that Iran was engaging with the US and hinted that an agreement might be reached to avoid military action.
Attendees further indicated that when Trump noticed Supreme Court Chief Justice John Roberts was present during his speech, he remarked that he wouldn't joke about him because he needed to "curry favor with him."
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