The Fed must 'stay in its lane,' Kevin Warsh tells Congress

President Donald Trump's nominee to lead the Federal Reserve will tell lawmakers Tuesday that the central bank's independence in setting interest rates is "essential," but that the Fed risks that independence when it strays beyond its core mission.

"The Fed must stay in its lane," Kevin Warsh will tell the Senate Banking Committee, according to prepared remarks first published by Politico. "Fed independence is placed at greatest risk when it strays into fiscal and social policies where it has neither authority nor expertise."

Warsh, Trump's pick to succeed Federal Reserve Chair Jerome Powell, framed independence as something the Fed must earn through its own conduct rather than something automatically conferred. "Simply stated, Fed independence is largely up to the Fed," he said.

Rather than cautioning Trump against publicly pressing for lower rates, Warsh said in his prepared remarks that the independence of monetary policy is not "particularly threatened when elected officials — presidents, senators, or members of the House — state their views on interest rates." On the qualities required of central bankers, he called for decisions grounded in "analytic rigor, meaningful deliberation, and unclouded decision-making," while remaining open to a wide range of perspectives.

Warsh drew a distinction between the Fed's independence in setting monetary policy — which he described as operating at its peak — and other functions such as bank supervision, stewardship of public funds, and international finance matters, where he said the same deference does not apply.

On inflation, Warsh was direct: "Inflation is a choice, and the Fed must take responsibility for it." He said low inflation is the Fed's "vital protection" and that surging prices cause particular harm to lower-income Americans.

Warsh also criticized what he described as the Fed's tendency toward institutional overreach, a position he has held for years. In his prepared remarks, he said he witnessed the Fed tempted to "play a larger role in the economy and society" in the period after the 2008 financial crisis, stretching its credibility "to the very edge of, if not beyond, the Fed's statutory responsibilities." He said he would work to keep the Fed "mindful of its limits, focused on its mission."

Warsh was on the Fed's Board of Governors from 2006 to 2011, which put him at the center of decisions during the global financial crisis. He later worked with investor Stan Druckenmiller and now holds a senior position at Stanford's Hoover Institution.

Powell's term as Fed chair ends on May 15, but Warsh's confirmation is facing challenges. Republican Sen. Thom Tillis of North Carolina has said he plans to block the nomination in committee until a U.S. attorney's inquiry into the Fed's headquarters renovation is resolved. Powell has said he will stay on as chair as is customary if none is confirmed by the time his term ends. Administration officials remain confident that Warsh will be confirmed, and White House spokesman Kush Desai called him "eminently qualified to restore confidence and competence in Fed decision-making."