Wash Concludes His Visit to Capitol Hill! Here’s What He Said Over the Past Two Days

Author: Xiaoxiang, Caixin News

For Kevin Wash, reputation is crucial.

This week’s visit to Capitol Hill, his first since taking office, highlights how challenging it is for the new Federal Reserve Chairman to maintain his credibility.

Just seven weeks into his tenure, Wash attended hearings before the House Financial Services Committee and the Senate Banking Committee for two consecutive days. Faced with repeated challenges from Democratic lawmakers regarding his independence, internal reforms, and policy transparency, the new Fed chief managed to scrape by with a relatively hawkish stance and impressive rhetoric, but the trust challenges he faces under the political spotlight are just beginning.

As the "central bank chief" appointed by President Trump, Wash has been confronted with skepticism about his close ties to the White House from the moment he stepped onto Capitol Hill.

"To prove your independence, you will face a tough battle," Massachusetts Senator Elizabeth Warren bluntly stated during the hearing.

For a long time, Trump has publicly pressured the Fed to lower interest rates, drawing significant attention to the current Fed's policy independence. In his testimony, Wash repeatedly emphasized that combating inflation would be his top priority and clearly stated that he is "fully prepared" to handle any political pressure that may arise. At a critical moment during the questioning, Wash even delivered a memorable line to set the record straight: "Trump chose an independent person to do an independent job."

In addition to the skepticism surrounding the Fed's independence, a series of internal reform initiatives recently proposed by Wash have also become a focal point for Democratic attacks. Among them, the plan to establish an AI productivity and employment task force led by billionaire venture capitalist Marc Andreessen has sparked the most controversy.

New York Congresswoman Nydia Velázquez sharply criticized Wash for outsourcing the Fed's core responsibilities to a "secret task force lacking transparency." Minnesota Senator Tina Smith went even further, hitting the nail on the head: "How can it be credible in the eyes of ordinary people to have a group of individuals who are likely to profit immensely from AI lead this task force?"

In response, Wash downplayed the power of the task force, emphasizing that it would only serve an advisory role, while the Fed remains the "sole decision-maker" for all policy changes.

On the policy tools front, Wash's abandonment of the traditional "forward guidance" policy has also come under fire. Warren and Michigan Congresswoman Rashida Tlaib expressed concerns that reducing public forward guidance could lead to core insider information flowing only to the privileged elite. Wash promised on the spot that the Fed "will never provide any special favors to the powerful," and all policy decisions will be made public the moment they are finalized.

However, this seemingly "charged" hearing did not ultimately escalate into a full-blown confrontation. The Washington political scene has shown a pragmatic attitude of "listening to his words and observing his actions" towards Wash.

Industry insiders have summarized the key areas of market concern addressed during the two-day testimony into the following five points:

① Monetary Policy

Wash hardly mentioned his views on interest rates during the two days of testimony, aligning with his consistent stance that the Fed should not signal its next moves in advance.

However, although he did not explicitly state that he would tighten monetary policy, Wash made it clear that options for curbing inflation include utilizing interest rates.

Wash stated that interest rates should be the primary driver of monetary policy.

He also pointed out that decision-makers would be required to engage in thorough and vigorous internal discussions regarding the extent and timing of the tools to be used.

② Inflation

Wash emphasized a "zero tolerance" approach to inflation and firmly committed to restoring price stability.

Wash downplayed the significance of single-month CPI data, stating that he does not wish to overinterpret any single data point (the U.S. June CPI unexpectedly fell before his testimony on Tuesday). "Some people may look at this morning's data and say, 'Well, the job is done, everything is fine.'" He said, "But I don’t see it that way."

Wash believes that while the labor market aspect of the Fed's dual mandate looks quite good, the price stability aspect is not in as favorable a position.

Wash expressed dissatisfaction with any current inflation indicators—including the trimmed mean measure from the Dallas Fed—believing these indicators do not reliably capture potential price pressures. Wash's view is that the Fed needs new metrics to understand potential changes in inflation.

③ Independence

Wash emphasized his independence, stating that Trump chose an "independent person to do an independent job."

Wash stated that Trump did not attempt to influence monetary policy decisions, saying, "Even if he really tried to do so, I would continue to focus on doing my job."

Wash also noted that he would not feel uncomfortable receiving a call from the president. In terms of publicly sharing his personal schedule, he would adhere to the Fed's past practices.

Wash committed that political factors would not be considered when setting interest rates.

④ Artificial Intelligence

Wash believes that the price increases brought about by the AI boom do not necessarily stimulate inflation.

He pointed out that the impacts of the AI boom differ from external conflicts because the supply side will respond, stating, "I do not believe that one-time price changes will necessarily drive up inflation."

Wash also predicted that given time, AI will increase productivity and wages.

⑤ Fed Reform

Wash expressed his satisfaction with the current structure of the Fed Board and regional reserve banks.

Wash emphasized the need for policy system reforms and a re-examination of current practices. He stated that the need for thorough reform arises because past Fed policies are the root cause of current inflation.

Wash pointed out that the five task forces he has currently established will start from scratch and he is willing to regularly share the research findings and ideas of the task forces by the end of this year.

When asked whether he would commit to establishing fixed standards for holding press conferences, Wash stated that any future adjustments to the Fed's communication methods would not be intended to conceal information.

Conclusion of Two Days at Capitol Hill

According to U.S. law, such congressional hearings for the Fed Chairman will be held twice a year.

As House Financial Services Committee Chairman French Hill humorously summarized at the end of the first day of hearings: "Ladies and gentlemen, this is the first season, first episode of Wash's tenure at the Fed. We look forward to the release of the second episode."

For Wash, passing the first episode relied on his eloquence and relatively hawkish statements, but to truly establish and maintain the Fed's credibility in the coming months, he will need to deliver a response that genuinely convinces the market and Congress through actions against inflation and resisting political interference.

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