Most people don’t know and don’t have much reason to care what a currency swap line is, except that the financial instrument could soon help markets understand what Federal Reserve Chair nominee Kevin Warsh’s unique ideas about Fed independence really mean.
Warsh has said categorically the Fed should be “strictly independent” in the making of monetary policy. But he adds that he’s willing to work with Congress and the Trump administration on “non-monetary matters.”
In answers to senators’ questions following his April 21 confirmation hearing, he elaborated: “Fed officials are not entitled to the same special deference in areas affecting international finance, among other matters.”
Warsh has also talked often about a new “Fed/Treasury accord” that he’s suggested could govern the Fed’s balance sheet, though in ways he has yet to detail.
To six former Fed officials interviewed for this article, those comments were unclear or confusing at best. When it comes to Fed independence, they found his analysis worrisome at worst. The outcomes could be benign, tinkering around the edges of existing conventions, or more concerning limitations to the Fed’s ability to use its balance sheet in a crisis. Because of the lack of clarity in Warsh’s comments, none of the former officials who spoke with CNBC were ready yet to draw conclusions either way.
