Kevin Warsh, President Bush's former economic adviser and current nominee to lead the Federal Reserve, told the Senate Banking Committee on Wednesday that he takes the institution's independence seriously and has not pre-committed to any particular policy path.
During his confirmation hearing, Warsh outlined several policy preferences while emphasizing deliberate action. He said the Fed should shrink its balance sheet slowly and with clear signals to markets in advance, and that this process should be coordinated with the Treasury Department. He also argued for reform to the Fed's framework and to how it communicates, contending that Fed officials are communicating too often.
On price stability, Warsh said the trajectory of inflation has been improving but that additional work is still necessary. He warned that the Fed has a short window to return inflation to target levels and attributed the current above-target inflation to policy errors made in 2021 and 2022.
Warsh proposed adopting a new inflation framework that places greater weight on trimmed-mean and median measures of inflation rather than relying principally on core personal consumption expenditures. He cited specific readings for those measures: the Dallas Fed's trimmed-mean inflation at 2.3 percent year-over-year and 2.0 percent on a six-month annualized basis, and the Cleveland Fed's median inflation at 2.8 percent year-over-year and 2.2 percent on a six-month annualized basis. He contrasted those figures with core PCE, which he noted was 3.0 percent year-over-year and 3.4 percent on a six-month annualized basis.
On labor markets, Warsh described conditions as broadly close to full employment. He also raised the role of artificial intelligence in the current economic backdrop, saying AI appears to be augmenting the economy's supply side and could produce sizable productivity gains. He said the Fed needs to assess the magnitude and implications of the present productivity upturn.
The hearing included an explicit political obstacle for the nomination. Republican Senator Thom Tillis said he will oppose Warsh's confirmation until the Department of Justice completes its investigation into current Fed Chair Jerome Powell. Tillis's opposition from a single Republican on the committee could block the nomination if no committee Democrats join in supporting Warsh.
Context limitations: The information above reflects Warsh's statements and the committee exchange during the hearing. It does not include further developments or external analysis beyond those remarks.