“We have long been an independent central bank, and we will remain one—nothing will change on that front.” Against the backdrop of ongoing friction between the White House and the Federal Reserve over monetary policy, newly appointed Fed Chair Kevin Warsh made a clear promise at the European Central Bank conference in Portugal on July 1, declaring the Fed’s independence “will not change” and vowing to firmly tackle inflation. Recently, the US Supreme Court ruled by a narrow 5-4 majority to reject President Trump’s request to fire Fed board member Cook. Many foreign media outlets commented that this Supreme Court decision has effectively safeguarded the institutional foundations of the Fed’s independent operations.
Kevin Warsh (Visual China)
According to reports from the Financial Times, Warsh delivered his second public speech since taking office at the ECB conference. He firmly stated that no matter how much the White House pressures for rate cuts, the Fed will stick to its statutory duties and remain committed to achieving price stability. The report noted that Warsh’s remarks directly addressed external doubts about his “independence” stemming from his nomination by Trump. Previously, voices from the US Democratic Party had warned that Warsh might become a White House puppet, and markets initially expected the new chair to adopt a more “dovish” policy stance.
Since Trump first nominated Warsh in January, the US economic landscape has shifted dramatically. In May, due to the impact of the US-Israel-Iran conflict on international energy prices, the US inflation rate surged to a three-year high of 4.2%.
“The Fed typically curbs inflation by raising borrowing costs, and Warsh’s stance may mean the rate cuts Trump seeks will be unattainable,” Associated Press reported. Warsh has recently emphasized the Fed’s tough approach to tackling inflation and its commitment to the 2% inflation target. This position starkly contrasts with his campaign rhetoric last year, when he called for rate cuts, suggesting that his views have shifted since succeeding former Fed Chair Jerome Powell on May 22.
France Inter Radio reported that markets are highly sensitive to any changes in the Fed’s independence. Investors have long viewed central bank independence as a pillar of bond market stability. If investors worry that the US President could freely reorganize the Fed’s board and push policies tolerating higher inflation, their willingness to buy US Treasury bonds could wane, driving up interest rates. Following Warsh’s speech, the yield on the two-year US Treasury note, which is particularly sensitive to rate expectations, fell by 0.03 percentage points that day.
