“Popular candidate for Federal Reserve Chairman” Walsh once again supports Trump: Independence does not prevent quick interest rate cuts

The Zhitong Finance App learned that Kevin Warsh (Kevin Warsh), a popular candidate for the next chairman of the Federal Reserve, once again made a big statement. In his latest interview, he said that the independence of the central bank is “essential”. However, he added that the scope of this independence is very limited, and emphasized that under the leadership of current Federal Reserve Chairman Jerome Powell (Jerome Powell), the Federal Reserve has entered policy areas where it has no authority. Walsh also said that there is no conflict between insisting on independence and cutting interest rates right away, and that the Federal Reserve should not worry too much about inflation continuing to rise due to tariffs.

Previously, Kevin Walsh was regarded by some Wall Street investment institutions as a “shadow Federal Reserve Chairman,” because the former Federal Reserve governor was considered by Trump as Treasury Secretary and has repeatedly supported Trump's “drastic interest rate cut” views in public speeches, so many Wall Street institutions consider him the most likely candidate for the next Federal Reserve Chairman. Walsh's many previous remarks in support of interest rate cuts were even regarded as a “nomination” handed over to Trump. He even said that if the Fed was unable to stop the price increase caused by tariffs from turning into continuous inflation, it was the Fed's policy mistake rather than the tariffs themselves.

The person who proposed the concept of “shadow Federal Reserve Chairman” was Scott Bessent, the current US Treasury Secretary. The idea stemmed from Trump's dissatisfaction with the Fed's failure to cut interest rates and concerns about the economic outlook after imposing tariffs. Bessent believes that the “shadow Federal Reserve Chairman”'s forward-looking guidance on monetary policy is enough to make the market “less concerned about Powell's words.”

At the time, Bessent advocated appointing the next chairman a long time in advance, so that the “shadow Federal Reserve Chairman” could speak out and participate in policy communication and management of expectations during the remainder of Powell's term, thereby weakening Powell's influence and seeking monetary policy initiative for Trump's economic agenda ahead of time.

Trump has repeatedly criticized Powell's hawkish stance of not cutting interest rates in line with the current state of the US economy, and maintaining high interest rates for a long time is a major drag on the Trump administration's economic growth blueprint. The concept proposed by Beisent at the time can be described as providing Trump with a new idea: Powell can be “soft-replaced” during his legal term without touching the more difficult legal removal process. However, this concept has sparked heated debates between academia and the market over the independence of the Federal Reserve, and has attracted much attention on the topic of “Powell's successor.”

“History tells us that the independent operation of monetary policy is of course essential,” Walsh said in an interview with the media on Thursday local time. “But that doesn't mean the Federal Reserve is independent on all other matters.”

Walsh served as a member of the Federal Reserve from 2006 to 2011, during which time he continued to pursue hawkish interest rate policies aimed at curbing the risk of inflation. However, this year, he instead advocated drastic interest rate cuts, which is completely in line with US President Donald Trump's position. Trump, on the other hand, is considering nominating someone to take over as Chairman of the Federal Reserve after Powell's term expires in May next year.

Walsh reiterated his criticism of the Federal Reserve under Powell's leadership, accusing it of being too concerned that Trump's tariffs might drive up inflation, and emphasized that the impact of tariffs on inflation was one-off rather than continuous.

“If they were a very credible central bank, they could say, 'We're ignoring this one-off price change. ' However, they have been slow to cut interest rates; I think it is their fault.”

Walsh also said that it was correct for Trump to publicly pressure the Federal Reserve's monetary policy, and that the current Fed policymakers are hesitant about cutting interest rates, causing the Fed to gradually lose its credibility.