Federal Reserve Chair Jerome Powell made a point of avoiding any comments with political implications at his press briefing on Wednesday, but President Donald Trump’s nomination of Kevin Warsh on Friday to become the new Fed chief has put Powell’s remarks in a different light.
Warsh, a former Fed governor, has long been on Trump’s short list to succeed Powell. In recent months, he has urged the Fed to reevaluate its economic models, restructure, and reduce its staff.
“What the Fed really needs to do is change their operating framework,” Warsh said. “They need to change their models. They need to change a lot of personnel.”
When asked on Wednesday what advice Powell would give to his eventual successor, he responded by saying to stay away from politics while actively engaging with members of Congress, the institution that demands accountability from the Fed and confers legitimacy upon it.
Whether this was intentionally aimed at Warsh or not, Powell also offered a strong defense of the Fed’s personnel.
“It’s easy to criticize government institutions in so many ways,” he said. “I will tell whoever it is: You’re about to meet the most qualified group of people you not only have ever worked with—you will ever work with—when you meet Fed staff. And not everybody’s perfect, but there isn’t a better cadre of professionals who are more dedicated to the public well-being than work at the Fed.”
Powell was also asked about whether the Fed’s economic models focused too much on backward-looking data and didn’t incorporate game-changing developments like AI.
He stated that such criticisms “just don’t make sense,” while acknowledging that the structure of the macroeconomy is constantly changing.
For example, the COVID pandemic was a once-in-a-century event, as were Trump’s tariffs, creating great uncertainty. Powell also emphasized that when it comes to technological developments that boost potential output, such as AI, “we’re fully on top of that.”
“We’re very clear-eyed about the possibility that this higher productivity may endure, and also that it may not,” Powell added. “No one here is oblivious to the prospect of higher productivity.”
The Fed is well aware that higher productivity means higher potential output, which reshapes one’s view of inflation, economic growth, and the labor market, he explained.
“That’s all in our models,” Powell said. “I mean, if the issue is simply using better models, bring them forward. Where are they? We’ll accept them. We are certainly in touch with anyone involved in economic modeling, and we are always seeking to improve.”
Presently, Warsh still has to be confirmed by the Senate to become the next Fed chair when Powell’s term concludes in May. It is uncertain whether or when Warsh will receive a hearing, as a prominent Republican senator has threatened to block any of Trump’s Fed nominees until the Justice Department’s criminal investigation into Powell is concluded.
Earlier this week, it was reported that the Fed has not yet complied with grand jury subpoenas issued as part of the DOJ’s investigation. Powell refrained from commenting on the matter on Wednesday.
On Friday, Sen. Thom Tillis (R-N.C.) described Warsh as a qualified candidate with a profound understanding of monetary policy, but vowed to continue blocking any nominees and stated that safeguarding the Fed’s independence is non-negotiable.
“My stance remains unchanged: I will oppose the confirmation of any Federal Reserve nominee, including for the chairmanship, until the DOJ’s inquiry into Chairman Powell is fully and transparently resolved,” he said.