Wozz wraps up his trip to Capitol Hill! One article to break down everything he said these past two days?

By: @潇湘, Caixin Media

For Kevin Warsh, credibility is crucial.

And his first trip to Capitol Hill since taking office this week shows just how difficult it is for the new chair of the Federal Reserve to maintain credibility.

Just seven weeks after taking office, Warsh attended hearings consecutively for two days: the House Financial Services Committee and the Senate Banking Committee. Facing repeated attacks from Democratic lawmakers on his independence, internal reforms, and policy transparency, the new leader of the Fed managed to get through, aided by a relatively hawkish posture and strong debating skills. But under the political spotlight, the trust challenges he faces are only just beginning.

As the “central bank chief” appointed by President Donald Trump, Warsh has, from the moment he stepped onto Capitol Hill, been confronted with outside doubts about how close his relationship with the White House is.

“To prove your independence, you’re facing a hard battle,” Massachusetts Senator Elizabeth Warren said plainly during the hearing.

For a long time, Trump has openly pressured the Federal Reserve to cut interest rates, which has put the Fed’s policy independence under the microscope. In his testimony, Warsh repeatedly emphasized that fighting inflation would come first, and he clearly stated that he was “fully prepared” to deal with any political pressure that might follow. At a key moment in questioning, Warsh also delivered a memorable line to set the record straight: “Trump picked an independent person to do an independent job.”

Beyond questions about the Fed’s independence, a series of internal reform measures Warsh has recently rolled out have also become the target of Democrats. Among them, the plan to establish an AI productivity and jobs working group led by billionaire venture capitalist Marc Andreessen has drawn the biggest controversy.

New York congresswoman Nydia Velázquez sharply criticized Warsh, accusing him of “outsourcing the Fed’s core responsibilities to secret working groups that lack transparency.” Minnesota Senator Tina Smith went even more directly: “How could leading a group of people who are very likely to get rich off AI possibly have credibility with ordinary people at the grassroots?”

In response, Warsh played down the group’s power, stressing that the working group would only have advisory functions, while the Federal Reserve is the “only decision-maker” for all policy changes.

At the level of policy tools, Warsh’s decision to abandon the traditional “forward guidance” approach was also attacked. Warren and Michigan congresswoman Rashida Tlaib worried that reducing public forward guidance would mean core inside information would flow only to powerful and privileged groups. Warsh made an on-the-spot commitment that the Fed would “never offer any special treatment to powerful people,” and that all policy decisions would be fully disclosed the moment they are released.

However, despite the seemingly “gunpowder-filled” hearings, they ultimately did not turn into a full-scale confrontation. Washington’s political circles took a pragmatic attitude toward Warsh—“listen to what he says, and look at what he does.”

And industry insiders also provided the following five brief summaries of multiple areas of market concern covered in the two-day testimony and remarks:

① Monetary Policy

In the two days of testimony, Warsh hardly discussed his views on interest rates, which aligns with his long-standing position—that the Federal Reserve should not hint at its next move in advance.

However, although he did not explicitly say that the Fed would tighten monetary policy, Warsh made it clear that options to curb inflation include using interest rates.

Warsh said that interest rates should be the primary driver of monetary policy.

Warsh also pointed out that decision-makers would need to have full and heated internal discussions about the degree and timing of how much the tools should be used.

② Inflation

Warsh emphasized a “zero tolerance” approach to inflation, and firmly committed to restoring price stability.

Warsh downplayed the importance of a single month’s CPI data, saying he does not want to overinterpret any single data point (the U.S. June CPI released on Tuesday before the testimony fell more than expected). “Some people may look at the data this morning and say, ‘Okay, mission accomplished—everything is great.’” he said, “But I don’t see it that way.”

Warsh believes that the labor market portion of the Fed’s dual mandate looks fairly good, but the portion focused on maintaining price stability is in a tougher position.

Warsh said he is not satisfied with any of the current inflation indicators—including the Dallas Fed trimmed mean measure—arguing that these indicators cannot reliably capture underlying price pressures. His view is that the Fed needs new measures to understand potential changes in inflation.

③ Independence

Warsh emphasized his independence, saying Trump chose an “independent person to do an independent job.”

Warsh said Trump did not try to influence how monetary policy is formulated. “Even if he did try, I would continue to focus on doing my job.”

Warsh also noted that he would not feel uncomfortable receiving a call from the President. Regarding public scheduling of his personal calendar, he said he would follow the Fed’s usual practice.

Warsh promised that when setting interest rates, he will not consider political factors.

④ Artificial Intelligence

Warsh believes that price increases driven by the AI boom do not necessarily translate into inflation.

He said the effects of the AI boom are different from external conflict, because the supply side will respond. “I don’t think a one-time change in prices will necessarily raise inflation.”

Warsh also expects that in due course, AI will boost productivity and wages.

⑤ Fed Reform

Warsh said he likes the overall structure of the current Federal Reserve Board and the regional reserve banks.

Warsh emphasized that changes to the policy framework are needed, and that current practices must be reexamined. He said, the reason a thorough overhaul is needed is because past Fed policies are the culprit behind today’s inflation.

Warsh pointed out that the five working groups he has set up will start from a blank slate, and he is willing to regularly share the working groups’ research results and ideas before the end of this year.

When asked whether he would commit to establishing fixed standards for holding press conferences, Warsh said that any future adjustments in how the Fed communicates will not be aimed at hiding information.

Capitol Hill trip over after two days

Under U.S. law, such congressional hearings for Fed chairs are held twice each year.

As French Hill, chairman of the House Financial Services Committee, quipped at the end of the first day of hearings: “Folks, this is season one, episode one of Warsh steering the Fed. We look forward to episode two.”

For Warsh, passing the first episode relied on his eloquence and relatively hawkish statements. But to truly establish and maintain the Fed’s credibility in the coming months, he still needs to deliver a real answer—backed by concrete actions to fight inflation and resist political interference—that can convince both the market and Congress.