Kevin Warsh’s Senate Testimony on Federal Reserve Nomination
Kevin Warsh is set to testify on Tuesday regarding his nomination to lead the Federal Reserve, and it’s likely senators will ask him about the Fed’s inflation target of 2%. This comes in light of ongoing price pressures that have impacted the U.S. economy since the pandemic began.
At 56, Warsh previously served on the Fed’s board from 2006 to 2011. He’s appearing before the Senate Banking Committee as they deliberate his nomination to replace Jerome Powell, whose term expires in May.
In a written version of his opening statement, which was viewed before his testimony, Warsh shared his thoughts on the Fed’s dual mandate concerning price stability. Interestingly, while he acknowledges the importance of both price stability and full employment, he didn’t specifically refer to the long-term policy goal of maintaining inflation at 2%.
Warsh’s remarks hinted at a potential shift in the Fed’s current approach, indicating a more aggressive stance. He stated that “inflation is a choice, and the Fed must be held accountable for it.” He described low inflation as crucial for protecting the Fed against various economic challenges.
He also addressed the impact of inflation, particularly how it hits the least wealthy the hardest, reducing their purchasing power and eroding their standard of living. In his view, this could lead to diminishing trust in economic governance and questions about the independence of monetary policy.
In discussions about monetary policy objectives, Warsh expressed skepticism regarding the reliable measurement of inflation and the potential pitfalls of single-point targets. He emphasized that price stability should remain a primary focus, noting that without it, achieving full employment and overall economic growth becomes extremely challenging.
Warsh remarked on the uncertain nature of inflation measurements, stating, “We don’t really know if the U.S. and UK inflation rates are at 1.7%, 2.0%, or 2.3%.” He suggested that a preferred approach would involve ranges rather than fixed estimates, as the global economy is continually evolving.
U.S. inflation rose sharply to 9.1% in June 2022 but is now around 3%. Factors such as tariffs and energy market fluctuations have contributed to this situation. The Fed’s favored inflation measure, the personal consumption expenditure (PCE) index, was reported at 2.8% annually in February, with March figures expected soon. Meanwhile, the Consumer Price Index (CPI) noted 3.3% in March, showing an increase from February’s 2.4% amid ongoing global events.
