Federal Reserve Chairman Jerome Powell made a point of avoiding any comments with political implications during his Wednesday news conference, but President Donald Trump’s nomination Friday of Kevin Warsh as the new Fed chief put Powell’s remarks in a different light.
Warsh, a former Fed governor, criticized the central bank since he was on Trump’s shortlist to replace Powell. In recent months, he has called on the Fed to rethink its economic models, reorganize and downsize its workforce.
“What the Fed really needs to do is change its operating framework,” Warsh said. Fox Business in October. “They have to change their models. They have to change a lot of personnel.”
When asked Wednesday what advice Powell would give to his potential successor, he suggested staying out of politics while actively engaging with members of Congress, which is the institution that ensures accountability and legitimacy for the Fed.
And whether this was intentionally aimed at Warsh or not, Powell also vigorously defended the Fed staff.
“It’s easy to criticize government institutions in many ways,” he said. “I will tell anyone: You are about to meet the most qualified group of people you have ever worked with – that you will ever work with – when you meet the Fed staff. And not everyone is perfect, but there is no better cadre of professionals more dedicated to the public welfare than those who work at the Fed.”
Powell was also asked whether the Fed’s economic models focused too much on retrospective data and failed to incorporate revolutionary developments like AI.
He said such criticisms “just don’t make sense”, while acknowledging that the structure of macroeconomics is constantly changing.
For example, the COVID pandemic was the first of its kind in a century, as were the tariffs imposed by Trump, creating great uncertainty. Powell also argued that when it comes to technological developments that increase production potential, such as AI, “we are all in agreement.”
“We are very clear-eyed about whether or not this higher productivity will persist,” Powell added. “No one here is unaware of the possibility of higher productivity.”
The Fed is well aware that higher productivity means higher potential output, which changes the way we think about inflation, economic growth and the job market, he explained.
“It’s all in our models,” Powell said. “I mean, if it’s just about using better models, bring them in. Where are they? We’ll take them. We’re certainly in contact with everyone who does economic modeling, and we’re always looking to do better.”
For now, Warsh still needs to be confirmed by the Senate to become the next Fed chair when Powell’s term expires in May. And it’s unclear if and when Warsh will be heard, as a key Republican senator has threatened to block any Trump nominee to the Fed until the Justice Department’s criminal investigation into Powell is resolved.
Earlier this week, sources said CNBC the Fed has yet to comply with grand jury subpoenas issued as part of the DOJ investigation. Powell declined to comment Wednesday.
On Friday, Sen. Thom Tillis (R-N.C.) called Warsh a qualified candidate with a deep understanding of monetary policy, but pledged to continue blocking any nomination and said protecting the Fed’s independence was non-negotiable.
“My position has not changed: I will oppose the confirmation of any Federal Reserve nominee, including for Chairman, until the DOJ investigation into Chairman Powell is resolved in a full and transparent manner,” he posted on.
This story was originally featured on Fortune.com
