Fed Chair nominee Warsh to reiterate importance of independence
- Fed Chair nominee Warsh will testify on Tuesday.
- Warsh's prepared remarks highlight his committment to Fed's independence.
- Investors are likely to remain focused on US-Iran news.
Kevin Warsh, United States (US) President Donald Trump's nominee to replace Jerome Powell as the next chair of the Federal Reserve (Fed), will testify before the Senate Banking Committee on Tuesday.
According to Warsh's prepared remaks released on Monday, he will tell lawmakers that he is "committed to ensuring that the conduct of monetary policy remains strictly independent."
Warsh will argue that a reform-oriented Fed can make a real difference and underscore that he is committed to "working with the administration and congress on non-monetary matters that are part of the Fed’s remit."
After delivering his prepared remarks, Warsh will respond to questions from the members of the Senate Banking Committee.
The CME FedWatch Tool currently shows that markets are pricing about a 60% probability of the Fed leaving the policy rate unchanged at 3.5%-3.75% at end-2026. Back in January, around the time when Warsh was officially nominated for the position, markets were forecasting three 25 basis points interest-rate cuts this year. Since then, expectations have changed dramatically, due to surging crude Oil prices feeding into inflation fears after the US and Israel carried out a joint operation against Iran.
Although Warsh is likely to be asked about potential policy-easing steps in the near future, he could refrain from offering any preferences, given the uncertainty surrounding the situation in the Middle East. Hence, the market reaction to Warsh's testimony could remain muted, with investors staying focused on US-Iran news.
US President Trump said on Monday that an extension to the US-Iran ceasefire, which is due to expire this Wednesday, was "highly unlikely." Although there are reports suggesting that the second round of talks between the US and Iran could take place before the deadline, Mohammed Bagher Ghalibaf, Iran’s chief negotiator and parliament speaker, said that they will not accept negotiations "under the shadow of threats,” and added that they have been preparing “to reveal new cards on the battlefield.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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