Author:Xiaoxiang, Cailian Press
For Kevin Warsh, credibility is paramount.
And Warsh's first visit to Capitol Hill this week, just after taking office, demonstrates how difficult it is for the new Federal Reserve Chairman to maintain that credibility.
Only seven weeks into his term, Warsh appeared before the House Financial Services Committee and the Senate Banking Committee for two consecutive days. Facing repeated challenges from Democratic lawmakers regarding his independence, internal reforms, and policy transparency, the new Fed chief managed to pass the test by relying on a relatively hawkish stance and impressive eloquence. However, under the political spotlight, the trust challenges he faces have only just begun.
It can be said that as the "central bank chief" personally chosen by President Trump, Warsh faced skepticism about being too close to the White House from the moment he stepped onto Capitol Hill.
"To prove your independence, you face an uphill battle," Massachusetts Senator Elizabeth Warren stated bluntly during the hearing.
Trump has long publicly pressured the Federal Reserve to lower interest rates, putting the policy independence of this Fed term under intense scrutiny. In his prepared remarks, Warsh repeatedly emphasized prioritizing the fight against inflation and clearly stated he was "fully prepared" to handle any political pressure that might follow. At a critical moment during questioning, Warsh delivered a memorable line to set the record straight: "Trump picked an independent person to do an independent job."
Beyond the doubts surrounding the Fed's independence, a series of internal reform measures recently introduced by Warsh also became a focal point for Democratic attacks. Among them, the plan to establish an AI Productivity and Employment Task Force led by billionaire venture capitalist Marc Andreessen sparked the most controversy.
New York Representative Nydia Velázquez was sharp in her criticism, accusing Warsh of "outsourcing a core Fed function to a secretive task force lacking transparency." Minnesota Senator Tina Smith went straight to the heart of the matter: "How can a group of people who stand to profit immensely from AI possibly have credibility in the eyes of ordinary working people?"
In response, Warsh vigorously downplayed the power of the task force, stressing it would only have an advisory role and that the Federal Reserve would be the "sole decision-maker" for any eventual policy changes.
At the policy tool level, Warsh's abandonment of the traditional "forward guidance" policy was similarly besieged. Warren and Michigan Representative Rashida Tlaib worried that reducing public forward guidance would funnel core inside information only to privileged, powerful circles. Warsh promptly promised that the Fed "will never provide any special treatment to the powerful," and that all policy decisions would be fully disclosed the moment they were made.
However, this seemingly "fiery" hearing did not ultimately escalate into a full-scale confrontation. The Washington political establishment adopted a pragmatic "wait-and-see" attitude towards Warsh.
And industry insiders have provided the following brief summary of the key areas covered in the two-day testimony that are of market concern:
1 Monetary Policy
Wash said almost nothing about his views on interest rates during the two days of testimony, consistent with his longstanding position that the Fed should not signal its next move in advance.
However, although he did not explicitly signal a tightening of monetary policy, Wash made it clear that options for curbing inflation include using interest rates.
Wash stated that interest rates should be the primary driver of monetary policy.
Wash also indicated he would ask policymakers to engage in robust and heated internal debate about the degree and timing of the tools needed.
2 Inflation
Wash emphasized "zero tolerance" for inflation and firmly committed to restoring price stability.
Wash downplayed the importance of single-month CPI data, saying he did not want to over-interpret any single data point (U.S. June CPI fell more than expected before Tuesday's testimony). "Some people might look at this morning's data and say, 'Okay, mission accomplished, everything's fine,'" he said. "I don't see it that way."
Wash believes the labor market part of the Fed's dual mandate looks quite good, but the price stability part is in less favorable territory.
Wash expressed dissatisfaction with any current inflation metrics—including the Dallas Fed's trimmed mean measure—believing these metrics do not reliably capture underlying price pressures. Warsh's view is that the Fed needs new measurement indicators to understand underlying inflation dynamics.
3 Independence
Wash emphasized his independence, stating Trump picked an "independent person to do an independent job."
Wash said Trump has not attempted to influence monetary policy making, "and even if he tried, I would just keep my head down and do my job."
Wash also noted he would not feel uncomfortable receiving a call from the President. Regarding public disclosure of his personal schedule, he would follow past Fed practice.
Wash pledged not to consider political factors when setting interest rates.
4 Artificial Intelligence
Wash believes that price increases driven by the AI construction boom do not necessarily have to stimulate inflation.
He pointed out that the impact of the AI boom differs from external conflicts because the supply side responds, "I don't believe a one-time price change necessarily drives up inflation."
Wash also anticipates that over time, AI will boost productivity and wages.
5 Fed Reform
Wash expressed his liking for the current overall structure of the Federal Reserve Board and the regional Reserve Banks.
Wash emphasized the need for changes to the policy framework and a re-examination of current practices. He stated that a thorough overhaul is needed because the Fed's past policies are the root cause of the current inflation.
Wash noted that the five task forces he has currently established will start from a blank slate and are willing to regularly share the task forces' research findings and ideas before the end of this year.
When asked about committing to a fixed standard for holding press conferences, Warsh stated that any future adjustments to the Fed's communication methods would not be aimed at hiding information.
The Two-Day Capitol Hill Trip Concludes
According to U.S. law, such congressional hearings for the Federal Reserve Chairman are held twice a year.
As House Financial Services Committee Chairman French Hill quipped at the end of the first day's hearing: "Folks, that's Season 1, Episode 1 of the Warsh Fed. We look forward to Episode 2."
For Warsh, "passing" this first episode relied on eloquent arguments and a relatively hawkish stance. But to truly establish and safeguard the Fed's credibility in the coming months, he will need to deliver a performance that genuinely convinces markets and Congress through tangible actions in fighting inflation and resisting political interference.
