US President Donald Trump recently stated that potential nominee Kevin Warsh would not receive the nomination for Federal Reserve Chair if he had previously expressed a desire to raise interest rates. "If he comes in and says 'I want to raise rates,' he absolutely won't get the job, no way," Trump remarked in an interview on Wednesday. Trump described an interest rate cut as "almost a certainty," citing the current "excessively high level" of rates, and asserted that the US has "now returned to the ranks of wealthy nations."
When questioned whether Warsh understood his intention to lower the benchmark interest rate, Trump responded, "I think he understands, but I sense he has that inclination himself." Trump's comments are anticipated to spark debate during Warsh's confirmation hearing, with the Fed's independence likely becoming a central issue. Senator Thom Tillis, a Republican member of the Senate Banking Committee, has vowed to block all of Trump's nominations to the agency until the Justice Department concludes its investigation into the Fed building renovation project.
Outgoing Fed Chair Jerome Powell has previously characterized this investigation as a "veiled attack" on the central bank's independent monetary policy decision-making ability. While Trump administration officials have denied this intent, the President himself has consistently pressured Powell for rate cuts in recent months. Notably, former Fed Governor Warsh, once known for his "inflation hawk" stance, has recently made multiple public statements supporting rate cuts.
This nomination struggle not only reflects the White House's forceful intervention in monetary policy but also poses a severe challenge to the Fed's century-long tradition of independence. Some analysts point out that if Warsh is nominated, he will urgently need to employ his highly regarded mediation skills to find a balance between political pressure and the central bank's professional judgment.
Furthermore, US Treasury Secretary Steven Mnuchin stated during a congressional hearing on Wednesday that the President has the right to influence the Fed's decision-making process. Mnuchin appeared that day before the US House Financial Services Committee hearing. Democratic Representative Emanuel Cleaver of Missouri asked him whether he would advise the President to "intervene rhetorically and politically" in the Fed's decisions. Mnuchin responded, "That's his right... and it's the right of everyone here as well."
Despite this, Mnuchin simultaneously emphasized that he believes the Fed should maintain its monetary policy independence, an independence built on the trust of the American public and which should be subject to accountability. Several economists have warned that any erosion of the Fed's independence would undermine market confidence in the US economy and financial system.
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