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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 cast Powell’s comments in a different light.
Warsh, a former Fed governor, became critical of the central bank because he was on Trump’s short list to replace Powell. In recent months, he has called on the Fed to rethink its economic models and restructure as well as shrink its staff.
“What the Fed needs to do is change its operating framework,” Warsh said Fox Business in October. “They have to change their models. They have to change a lot of personnel.”
When asked Wednesday what advice Powell would give his eventual successor, he suggested staying out of politics while also actively engaging with members of Congress, which is the institution that gives accountability and legitimacy to the Fed.
And whether this was intended to be directed at Warsh or not, Powell also provided a strong defense of the Fed staff.
“It’s easy to criticize government institutions in many ways,” he said. “I’ll tell whoever it is: You’re about to meet the most qualified group of people you’ve ever worked with—you’ll work with anyone—when you meet the Fed staff. And not all are perfect, but there’s no better cadre of professionals more dedicated to the public good than working at the Fed.”
Powell was also asked if the Fed’s economic models were too focused on backward-looking data and didn’t incorporate game-changers like AI.
He said that such criticisms are “absurd,” while recognizing the structure of the macro economy is constantly changing.
For example, the COVID pandemic is the first of its kind in a century, as are Trump’s tariffs, which create a lot of uncertainty. Powell also maintained that when it comes to technological advances that increase potential output, such as AI, “we’re all over it.”
“We’re very clear-eyed about the possibility that this higher productivity may continue, and it may not,” Powell added. “No one is sitting here without knowing the possibility of higher productivity.”
The Fed knows well that 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. Where are they? We’ll bring them. We’re certainly in contact with anyone who does economic modeling, and we’re always looking to do better.”
Currently, Warsh still needs to be confirmed by the Senate to become the next Fed chair when Powell’s term ends in May. And it’s uncertain 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 investigation into Powell is resolved.
Earlier this week, sources said CNBC the Fed has yet to comply with grand jury subpoenas issued as part of the DOJ investigation. Powell declined to comment on the matter on Wednesday.
On Friday, Sen. Thom Tillis (RN.C.) called Warsh a qualified candidate with a deep understanding of monetary policy, but vowed to continue to block 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 the position of Chairman, until the DOJ’s inquiry into Chairman Powell is fully and clearly resolved,” he posted on X.
This story was originally featured on Fortune.com
