Kevin Warsh, the newly appointed chair of the US Federal Reserve, has firmly reiterated the central bank's political independence following pressure from President Donald Trump over interest rates. In his first public appearance since assuming the role, Warsh stated there would be 'no changes' to the Fed's independence, despite Trump's repeated calls for lower rates.
First Public Remarks at ECB Forum
Speaking at the ECB Forum on Central Banking alongside Bank of England Governor Andrew Bailey and the heads of the European and Canadian central banks, Warsh outlined his vision for the Fed. He said, 'We're going to chart a new course so that we can make better decisions and do the right thing.' This includes abandoning 'forward guidance' on future interest rate decisions, adding, 'When we get into that room and shut the door we're going to have a good debate.'
Inflation Risks and Economic Outlook
Warsh noted that inflation risks in the world's largest economy have diminished in recent weeks. 'Expectations of inflation over the first four weeks of this period, they've come down. Inflation risks have come down,' he said. However, he reiterated that the Fed would not be 'comfortable' with an inflation target above 2%.
Bailey echoed the sentiment on energy prices, stating they had 'come down quite substantially' in recent weeks but remained higher than pre-Iran war levels. He noted a 'delayed reaction' in the UK due to Ofgem's energy price cap, which took effect for July to September.
Warsh's Appointment and Market Reaction
Warsh, nominated by Trump and replacing Jerome Powell in May, is viewed as a conservative-leaning economist with a 'hawkish' reputation, typically favoring higher interest rates to curb inflation. His selection was seen as a moderate choice given Trump's calls for faster rate cuts. On the current economic climate, Warsh acknowledged that 'prices are too high' but expressed optimism about declining inflation expectations.
