⏳ Reading Time: 3 minutesThis week Kevin Warsh – the President’s nominee as the new Chair of the US Federal Reserve – testified before the Senate Banking Committee. Mr Warsh needs to be confirmed by Congress. His confirmation isn’t assured, but he is eminently qualified and by all accounts he largely avoided any pitfalls in front of senators.
Meanwhile, the path of interest rates will continue to be a focus of attention – particularly given that the President is keen to see policy rates come down. Here Warsh has had some interesting things to say. In his hearing, he affirmed his commitment to Central Bank independence, at least when it comes to setting interest rates, which was largely as expected. He has also expressed the view that the Fed has been too involved in the economy, specifically by buying government bonds (so-called Quantitative Easing). He would like to reduce the size of the Fed’s balance sheet. At the same time he has acknowledged that it needs to be done very carefully, given concerns that Fed actions in the bond market could push Treasury yields higher.
The third interesting comment came around the impact of Artificial Intelligence (AI). Warsh believes that AI can drive significant productivity gains and act as a deflationary force. That would allow the Central Bank to bring down policy rates on a sustainable basis.
