Federal Reserve Chairman 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 been critical of the central bank since he’s been on Trump’s short list to replace Powell. In recent months, he has called on the Fed to rethink its economic models and revamp as well as shrink its staff.
“What the Fed really needs to do is change their operating framework,” Warsh said on Fox Business in October. “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 suggested staying away from politics while also actively engaging with members of Congress, which is the institution that provides accountability and legitimacy to the Fed.
And whether this was intentionally aimed at Warsh or not, Powell also delivered a robust 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 don’t incorporate game-changing developments like AI.
He said such criticisms “just don’t make sense,” while acknowledging the structure of the macro economy is constantly changing.
For example, the COVID pandemic was the first of its kind in a century, as was Trump’s tariffs, creating great uncertainty. Powell also maintained that when it comes to technological developments that raise potential output, such as AI, “we’re all over that.”
“We’re very clear-eyed about the possibility that this higher productivity may persist, and also that it may not,” Powell added. “No one’s sitting here unaware of the possibility of higher productivity.”
The Fed is well aware better productivity means higher potential output, changing how to think about inflation, economic growth, and the labor market, he explained.
“That’s all in our models,” Powell said. “I mean if it’s just a question of using better models, bring them on. Where are they? We’ll take them. We certainly are in contact with anybody 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 not certain if or when Warsh will get a hearing, as a key Republican senator has threatened to block any of Trump’s Fed nominees until the Justice Department’s criminal probe into Powell is resolved.
Earlier this week, sources told CNBC the Fed hasn’t yet complied with grand jury subpoenas issued as part of DOJ’s investigation. Powell declined to comment on it on Wednesday.
On Friday, Sen. Thom Tillis (R-N.C.) called Warsh a qualified candidate with a deep understanding of monetary policy, but vowed to continue blocking any nominees and said protecting the Fed’s independence is non-negotiable.
“My position has not changed: I will oppose the confirmation of any Federal Reserve nominee, including for the position of Chairman, until the DOJ’s inquiry into Chairman Powell is fully and transparently resolved,” he posted on X.
This story was originally featured on Fortune.com
