Newly appointed Federal Reserve Chair Kevin Warsh appeared before the U.S. House Financial Services Committee to deliver the central bank's semi-annual monetary policy report. This marked Warsh's inaugural congressional testimony since taking the helm, during which he detailed his proposed reforms to the monetary policy framework and fielded questions from lawmakers on core issues including the Fed's political independence, the potential economic impact of artificial intelligence (AI), and lessons from the history of financial crises. He is scheduled to testify before the Senate Banking Committee on Wednesday.
Elaborating on Five New Fed Task Forces, Stressing Transparency in Balance Sheet Policy
During the hearing, Warsh reiterated the reform commitments he made at his first press conference last month, focusing on his plan to establish five dedicated task forces. These groups will conduct comprehensive reviews and propose reforms across five key areas: policy communication, balance sheet policy, economic data analysis, productivity and employment, and the inflation framework.
In response to a representative's question, Warsh disclosed for the first time the reporting process for these task forces' findings. He indicated that the results will first be presented to the Federal Open Market Committee (FOMC), the Fed's 19-member policymaking body, before he formally announces them to the public.
Furthermore, addressing widespread market focus on potential adjustments to the Fed's massive $6.7 trillion balance sheet policy, Warsh emphasized the importance of "forward guidance" and communication. He pledged that any changes to balance sheet policy would be thoroughly communicated to markets and Congress well in advance and would never be implemented without prior notice and public discussion.
Firmly Defending Fed Independence, Vowing Policy Based Solely on Law and Data
Given that the previous Trump administration had repeatedly exerted public pressure on the Fed to lower interest rates, several Democratic lawmakers at the hearing strongly questioned Warsh's ability to withstand political pressure and maintain the Fed's decision-making independence.
In response to a direct question from Democratic Representative Nydia Velázquez about whether he was "working for the President," Warsh clearly stated that the Federal Reserve is an independent central bank, adding that "the Fed prides itself on its independence."
Later, when asked by another Democratic Representative, Gregory Meeks, about "how to handle pressure from the White House to cut rates," Warsh made a principled statement. He reaffirmed that his primary commitment is to strictly follow legal statutes, closely track objective economic data, and make decisions based on the best professional judgment, without being swayed by external political factors.
Highly Praising AI Industry Transformation, Calling It the "Most Notable Feature" of the Current Economy
Discussing the current high-profile technological transition, Warsh expressed an extremely optimistic view of AI infrastructure development, labeling it "the most notable feature of the U.S. economy right now."
Warsh noted that while the ultimate magnitude of AI's boost to the macroeconomy cannot be precisely quantified yet, this wave of technological transformation, similar to past tech revolutions, will significantly enhance national wealth, productivity levels, labor demand, and wage returns in the United States. He emphasized that AI development is fundamentally changing the method and pace of innovation, representing the most significant transformation he has witnessed in his adult lifetime, and that the U.S. is in an excellent competitive position to leverage this opportunity. However, he also acknowledged that the technology might cause some disruption and impact on certain industries in the short term.
Reflecting on 2008 Crisis Lessons, Re-examining Quantitative Easing Policy
As a firsthand witness to the crisis who served as a Fed Governor from 2006 to 2011, Warsh took the initiative during the hearing to reflect on the lessons from responding to the 2008 global financial crisis. He candidly stated that the experience left a profound mark on him and made him deeply aware of the critical importance of close inter-agency collaboration between the Fed, the Treasury, and other regulators during crisis periods.
Warsh further pointed out that the large-scale asset purchase program (known as quantitative easing, or QE) created by the Fed to combat that crisis had numerous drawbacks in its implementation, which was a primary reason for his decision to resign from the Board of Governors in the later stages. He revealed that the newly established balance sheet policy reform task force is currently re-examining and evaluating this policy framework. Warsh stated that he is inclined to believe the Fed can transition to a more optimal balance sheet management mechanism, but any changes must be carefully advanced only after thorough communication with markets and Congress.
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