Top White House economic adviser Kevin Hassett on Friday publicly criticized the Federal Reserve for declining to reduce interest rates during its most recent meeting and urged lawmakers to move quickly to confirm President's nominee Kevin Warsh as the next Fed chair.
Speaking in an interview on CNBC, Hassett acknowledged that legal questions linked to the Fed could slow Warsh’s confirmation process but said those issues "should get resolved quickly." He referenced a Department of Justice investigation into the central bank related to the cost of a renovation project for a Fed building.
Current Fed Chair Jerome Powell, whose term expires in May, has described the novel legal actions as a form of punishment for the Fed’s failure to follow directives from the White House. The investigation has attracted wide criticism, and Republican Senator Thom Tillis has said he will block nominations to the Fed until the matter is settled.
On the nominee, Hassett said the White House is strongly supporting Warsh’s confirmation. "The White House is highly, highly confident that Kevin Warsh is a great nominee and that he should be confirmed as soon as possible, and every single resource we have at our disposal is behind him and behind that outcome," he said in the interview.
Hassett, who was previously considered among candidates for the Fed chair role himself, said he was not troubled by not being chosen. He declined to describe Warsh’s policy positions, noting that the nominee is in a position to present his own views.
Responding to market reaction to Warsh’s nomination, Hassett pushed back on concerns about financial market responses and suggested that interest rates on government bonds "should be going down across all durations" because, in his view, the year-over-year fiscal deficit has been reduced.
On the currency, Hassett acknowledged recent dollar weakness but said there remain "a lot of good economic reasons to want a strong dollar."
Summary
The White House adviser criticized the Fed for not cutting rates, advocated for fast Senate confirmation of Kevin Warsh, noted an ongoing DOJ probe that could delay approval but expected a quick resolution, and argued reduced fiscal deficits should lead to lower government bond yields.
Key points
- Hassett criticized the Fed for not lowering interest rates at its recent meeting - impacting expectations in fixed-income markets.
- The White House is calling for expedited confirmation of Kevin Warsh and is strongly supporting his nomination.
- An active DOJ inquiry into Fed renovation costs could delay the confirmation process, and at least one senator has pledged to block nominees until the issue is resolved.
Risks and uncertainties
- Legal inquiry into the Fed related to renovation costs may delay or complicate the confirmation of Fed nominees - affecting monetary policy leadership and market certainty.
- Senate opposition, including a pledge from Senator Thom Tillis to block nominees, introduces uncertainty about the timing and outcome of any confirmation votes.
- Market sensitivity to the nomination and to monetary policy decisions could influence government bond yields and currency movements, especially if fiscal and policy expectations shift.