Episode summary
Contentious Confirmation Hearing Expected for Warsh, Says Claudia Sahm
Bloomberg Surveillance
· · Guests: Claudia Sahm
Summary
Claudia Sahm said Kevin Warsh’s nomination to lead the Federal Reserve immediately raises questions about independence, and she expects a difficult Senate confirmation hearing. She argued the central issue is whether the Fed can stay free from political pressure on interest rates, especially as Warsh has recently used combative language and criticized Fed officials and models.
Sahm said the Fed should stay focused on its dual mandate: maximum employment and inflation returning to the 2% target. She noted unemployment is below 4.5% and inflation is around 3%, but said that does not justify a “regime change” or disruption in how the Fed operates. In her view, the institution still has work to do and needs continuity rather than a sharp break.
She also said Warsh’s recent comments suggest a rocky transition if he is confirmed. While acknowledging he was data-driven when he served as a governor, Sahm said his more recent criticism of the staff, the models, and the Fed’s 2024 rate cuts could make it hard for him to build consensus. She called his idea of a new Fed-Treasury accord on the balance sheet “extremely radical and out of consensus.”
Key takeaways
- Claudia Sahm expects Kevin Warsh’s confirmation hearing to be contentious because Fed independence is now the central issue.
- Sahm says the Fed should keep its dual mandate front and center, with unemployment below 4.5% and inflation around 3%.
- She argues Warsh’s recent criticism of Fed models and staff suggests he may struggle to build consensus inside the central bank.
- Sahm calls Warsh’s idea of a new Fed-Treasury accord on the balance sheet “extremely radical and out of consensus.”
- She says the Fed’s balance sheet is a monetary policy tool and the White House should have no role in that conversation.
Notable quotes
“the hearing, his confirmation hearing should be a pretty difficult one, because right now the big conversation is about the independence”
“the Fed, the Fed's focus should be its dual mandate. It should be about maintaining maximum employment and getting inflation back to”
“I don't see this as a moment where we need to have, as Kevin was just talked about, a regime change come in and knock heads right there”
“It's extremely radical and out of consensus”
How the episode opens
I was at the Fed when Kevin Warsh was a governor. I've, you know, watched him in action as a policymaker. I've certainly followed his comments since then.
I mean, there's a lot about his track record and his recent comments about what we see in the economy and what's appropriate for interest rates. All that said, I think the conversation about Kevin Warsh and again today, he got the nomination. He's not the Fed chair yet.
He needs to go before the Senate. And I think the hearing, his confirmation hearing should be a pretty difficult one, because right now the big conversation is about the independence of the Fed. Will it be free from political influence in setting interest rates?
And there are some comments from Kevin Warsh I think he needs to be asked about, and that goes before all his views on the economy. So, Claudio, what do you think the Fed should be thinking about right now? Again, it's got that dual mandate here.
And and we're getting more and more data as we speak here. What do you think the focus should be or is for the Fed right now? Well, the Fed, the Fed's focus should be its dual mandate.
It should be about maintaining maximum employment and getting inflation back to the 2% target using the tools that it has. I mean, this is where, you know, the unemployment rate is below four and a half percent. The inflation rate is around 3%, much lower than it was, you know, just a few years ago.
But, you know, it's not it's not all the way back to Target. So I think they're you know, their job is not done. But I don't see this as a moment where we need to have, as Kevin was just talked about, a regime change come in and knock heads right there.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed chair confirmation
- hawkish rate policy
- balance-sheet expansion
- treasury yield curve
- dollar strength
Companies and tickers mentioned
- New Century Advisors
Watch the episode
Watch “Contentious Confirmation Hearing Expected for Warsh, Says Claudia Sahm” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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