Walsh Pledges to Defend the Fed’s Independence Amid Trump’s Allegations

Wash hearing emphasizes Fed independence, stating it will never be Trump's "puppet" and has never been asked to commit to rate cuts.

Original author: Li Dan

Source: Wall Street Journal

On Tuesday, the 21st, Eastern Time, the U.S. Senate Banking Committee held a hearing regarding the nomination of the Federal Reserve Chair. In response to questioning from senators across both parties, nominee Walsh emphasized maintaining the independence of monetary policy, stating that he would pursue comprehensive reforms at the Federal Reserve and would never act under the direction of President Trump.

In a pre-prepared opening speech, Wash pledged to "ensure that the implementation of monetary policy always maintains strict independence," while stating that "the Fed's independence depends primarily on the Fed itself," and that the Fed should adhere to its mandate; if it extends its functions into fiscal and social policy areas for which it lacks statutory authority, "its independence would face the greatest risk."

Wash said: "The independence of monetary policy is crucial. I believe that when elected officials—whether the president, senators, or representatives—comment on interest rates, the operational independence of monetary policy is not particularly threatened."

Wash stated that he is not suited to comment on Trump's dismissal of Federal Reserve Governor Lisa Cook, as he believes the Fed should adhere to its functional boundaries. The commentary notes that the core issue in this case is the extent to which the president may exert influence over the independent Federal Reserve.

Journalist Nick Timiraos, known as the "New Fed Whisperer," commented that during the hearing, Walsh largely stuck to his long-repeated positions on reforming the Fed—namely, replacing the Fed’s inflation forecasting model, reducing the frequency of external communications, and gradually shrinking its $6.7 trillion balance sheet over time.

Timiraos believes that whether Wash’s nomination will be confirmed depends not on whether he can secure enough votes, but on who will blink first on the criminal investigation into Fed Chair Powell—Trump or Republican Senator Thom Tillis.

Timiraos noted that several points stood out during the two-and-a-half-hour hearing:

• Wash avoided all proposals aimed at distancing him from Trump;
• Wash pledged to uphold the independence of the Federal Reserve, yet skillfully avoided addressing its most challenging tests—such as refusing to comment on Trump’s attempt to dismiss理事Cook, citing ongoing litigation, or on the criminal investigation targeting Powell regarding the Fed’s headquarters renovation;
• Wash's remarks on independence are likely to be unpopular within the Federal Reserve, as his main argument is that the Fed's recent difficulties are entirely self-inflicted.

Timiraos also noted that Wash did not call for rate cuts, but neither did he undermine the case for them. He argued that the Fed should focus on core inflation, citing metrics such as the “trimmed mean,” which excludes outliers. These indicators suggest that inflation is actually closer to the Fed’s 2% target. Wash also countered a view held by several current Fed officials that tariffs have driven up recent inflation data. However, he did not declare victory over inflation, stating instead: “The trend in inflation is improving, but there is still more work to be done.”

During the hearing Q&A, when Congressman John Kennedy asked whether Waugh would become Trump’s “puppet,” Waugh replied: “Absolutely not.”

Representative Ruben Gallego cited a Wall Street Journal report stating that Trump previously pressured Walsh to lower interest rates after his nomination confirmation, suggesting that someone is lying—either Trump or Walsh.

Wash objected to the above report, stating that the author needs to “seek more reliable sources or adhere to stricter journalistic standards.” He said, “I take full responsibility for every word I’ve said. The president never asked me to make any such commitment, and I would never make such a commitment.”

Senator Jack Reed asked Waugh whether he would yield to Trump’s demands for rate cuts. Trump has stated that he would not select someone as Fed chair who does not support rate cuts. Waugh responded that he had made no commitments to Trump.

Senator Elizabeth Warren called Walsh “extremely unfit” to be chair of the Federal Reserve. She repeatedly asked Trump whether he lost the 2020 election. Walsh refused to answer, saying, “If I am confirmed, we will work to keep politics out of the Federal Reserve.”

Warren pressed Wash repeatedly to disclose more details about his approximately $100 million in assets, asking whether any of those assets included entities tied to Trump or his family, or investments related to the convicted Epstein.

Wash reiterated that he has been working with the Office of Government Ethics (OGE) to divest his relevant personal assets. He has agreed that, following confirmation, he will “sell all of my financial assets,” yet has never provided any specific details about the assets.

Wash previewed that if his nomination is confirmed, he hopes to implement comprehensive reforms across the Federal Reserve, including changes to the policy implementation framework and the establishment of a new inflation framework. Wash believes the Federal Reserve needs a new inflation framework, but he did not disclose what form his envisioned framework would take.

Wash told Senator Tim Scott, Chairman of the Senate Banking Committee and a Republican lawmaker: “We need a new framework, new tools; Mr. Chairman, I would also like to add—we need a new way of communicating.”

Regarding communication, Wash stated that he believes Federal Reserve officials engage in "over-communication" on interest rates—specifically through the quarterly economic projections, in which officials are required to anonymously forecast the interest rate levels they consider appropriate, including what is known as the dot plot.

Subsequently, when asked how many monetary policy meetings he would hold per year if confirmed as Fed Chair, Wosh did not give a direct answer. He stated that, according to the Federal Reserve Act, the minimum is four times per year, but that is clearly insufficient. Wosh said, “Four meetings are clearly not enough, so holding more than that is appropriate.”

Regarding whether a post-monetary policy meeting press conference will continue to be held, Wash did not provide a clear answer, saying, "If a press conference is held, I believe it is an indispensable responsibility to listen to journalists' current concerns and questions." However, he reiterated his previous criticism that Federal Reserve officials have been speaking too much.

Representative Van Hollen expressed concern about Wash’s shifting stance on whether rate cuts are beneficial, saying, “I’m worried that your position on interest rates seems to swing with political convenience rather than sound economic judgment,” and asked Wash why he favors rate cuts at a time when inflation remains high.

Wash said that if the pace of potential economic growth accelerates—such as due to advancements in artificial intelligence (AI)—inflation concerns might ease, creating room for rate cuts.

Media noted that while Wash did not explicitly mention the word "productivity" in his response, it is at the heart of his argument. However, many economists remain skeptical of the claim that AI can help reduce inflation, pointing out that, at least in the short term, AI may instead push inflation even higher.

Wash outlined his thoughts on how AI will impact the economy. He noted that, on one hand, the massive investments businesses are making in AI infrastructure will boost demand in the short term, indirectly driving inflation. On the other hand, in the long term, AI technology itself has the potential to enhance the economy’s productive capacity, enabling faster growth without triggering inflation.

When asked about AI-related topics, Wash said: "We are at the most disruptive moment in modern economic history, not just for the United States but globally."

Senator John Kennedy expressed deep skepticism, stating that the promises of massive productivity gains from AI are, in his view, merely hype created by some to build momentum for an upcoming IPO.

Wash stated at the hearing that the Federal Reserve is “to blame” for the growing wealth inequality—the phenomenon now widely known as the “K-shaped economy”—and pointed out that the Fed’s massive balance sheet has expanded its influence over the economy.

Wash responded to Senator Warnock’s question: “I believe the Federal Reserve is largely responsible for the divide you’ve described between those who own financial assets and those who don’t—after all, the Fed’s balance sheet has grown from $800 billion when I joined in 2006 to a level an order of magnitude higher today.”

He added, "If the Federal Reserve had maintained a smaller balance sheet at the time... I believe interest rates could have been lower, inflation could have been better managed, and the economy could have been stronger."

Wash declined to specify an appropriate size for the Federal Reserve's balance sheet. However, he stated that the balance sheet should be reduced and that the Federal Reserve should no longer hold long-term Treasury securities.

In February this year, Xinhua cited U.S. media reports stating that wealth inequality in the United States continues to worsen, with structural divides accelerating and the characteristics of a "K-shaped economy" becoming increasingly pronounced. Xinhua noted that data shows that in the third quarter of 2025, the wealthiest 1% of the U.S. population held nearly 32% of the nation’s net worth, a record high, while the bottom half of the income distribution owned just 2.5% of the country’s total wealth.

Senator Lummis asked Wash whether he believes crypto assets should be integrated into the financial system to provide consumers with greater investment options and stronger consumer protections.

Wash gave a positive answer: "Digital assets have long been deeply integrated into and constitute a part of the fabric of our financial industry, so my answer is yes."

Wash also said that the Fed has no authority to issue a digital currency, and that would be a poor policy choice. The Federal Reserve indeed should not adopt a central bank digital currency (CBDC).

During the hearing, key Senator Thom Tillis stated that he would not ask questions regarding Wash’s views, but would instead use the opportunity to explain why he is blocking the nomination of the Federal Reserve Chair. Tillis had previously pledged to obstruct any Federal Reserve nominee until the U.S. Department of Justice withdraws the criminal investigation against Powell.

The Department of Justice investigation focuses on the billions-of-dollars renovation of the Federal Reserve’s headquarters in Washington, D.C., and Powell’s testimony last year before the Senate Banking Committee. Tillis presented a series of posters detailing the timeline of the Federal Reserve’s renovation project, noting that while the cost overruns were “regrettable,” they appeared to be “compliant and legitimate.”

Thillis said to Wash: "Let's first resolve this (Powell) investigation, so I can then support your nomination."