This week Kevin Warsh faced two and a half hours of Congressional grilling over his bid to be the next Federal Reserve chair. Unsurprisingly, there was extensive debate about monetary policy, and whether Warsh will be a “sock puppet” for US President Donald Trump. In other words, that he will cut interest rates to please him. Warsh claimed not.
However, another brief exchange during Warsh’s testimony was highly significant but went almost entirely ignored. When he was asked about the dollar, the putative next Fed chair declared that “there are risks to the US position in the world, including economic”, which made “the economic statecraft agenda” led by Scott Bessent, Treasury secretary, and Marco Rubio, secretary of state, very important.
So, he added, “the Fed will play a supporting role in ensuring that the financial system is as safe as it can be and work with [Bessent and Rubio], because it’s outside of the conduct of monetary policy”. In plain English: under Warsh, the Fed will embrace geoeconomics.