Federal Reserve Chair Kevin Warsh testified on May 15 before the Senate Banking, Housing, and Urban Affairs Committee, emphasizing that the Federal Open Market Committee (FOMC) operates by consensus and the chair cannot unilaterally direct policy decisions. Warsh stated that inflation will not become permanent during his tenure and outlined a three-part strategy to combat price pressures. The Fed chair assessed the central bank's dual mandate, noting that labor market conditions remain relatively solid while price stability has not been achieved.
Warsh Emphasizes FOMC Consensus-Driven Decision Making
When asked whether the Fed chair possesses a "magic wand" to persuade FOMC members to vote as desired, Warsh responded, "I wish I had such a wand, but I don't." He characterized the FOMC as "an organization that values consensus" and noted that "there are diverse views among the members."
Regarding recent hawkish comments from Fed Governor Christopher Waller, Warsh declined to single out specific statements, saying, "I don't want to comment on any particular member's remarks separately."
Fed Chair Outlines Three-Part Inflation Strategy
Warsh expressed confidence that "inflation will not become permanent while I am chair." He presented three specific approaches to achieve this goal.
First, Warsh stated, "If the market thinks the Fed is tolerating a higher level of inflation, we will do our best to make it clear that such thinking is wrong."
Second, he emphasized, "We will take that issue as our responsibility. We will make it clear that we have the authority to act."
Third, Warsh explained, "In a changing economic environment, we will review our policy tools, including the balance sheet and interest rates. And we will examine whether we need to adjust policy to directly address inflation."
Warsh stressed that the Fed has various policy tools available, including interest rate increases, decreases, and holding rates steady.
Fed Reform Task Force Results Expected Starting September
Regarding the five task forces established for Fed reform, Warsh stated that "briefings to FOMC members on initial reports and initial conclusions will begin." He added, "I hope we can share some initial results as early as September."
Warsh expressed his expectation to "hear final conclusions by the end of the year and decide how to utilize those results."
M2 Indicator Added to Monetary Policy Report
Addressing the newly included M2 (broad money supply) indicator in the monetary policy report, Warsh clarified, "I'm not claiming that knowing M2 alone can solve all inflation problems."
He noted that "money supply has been absent from the monetary policy report for probably 10 years, or even longer," and emphasized that "in my view, modern central bankers should utilize a mosaic of diverse information."
Warsh stated, "I have somewhat classical thinking. I believe monetary policy is ultimately related to 'money.'" He described M2 as "a very useful cross-checking tool," analyzing that "if we had paid more attention to the money supply surge in 2021-2022, we might have detected the inflation problem earlier."
FAQ
What did Fed Chair Warsh say about FOMC decision-making on May 15?
Fed Chair Kevin Warsh testified on May 15 before the Senate Banking Committee, stating that the FOMC operates by consensus and the chair does not have a "magic wand" to unilaterally direct policy decisions. He characterized the FOMC as an organization that values consensus with diverse views among members.
Why did the Fed add M2 to its monetary policy report?
Warsh explained that M2 (broad money supply) has been absent from the monetary policy report for probably 10 years or longer. He stated that modern central bankers should utilize a mosaic of diverse information, and M2 serves as a useful cross-checking tool. Warsh noted that closer attention to the money supply surge in 2021-2022 might have helped detect inflation problems earlier.
