Warsh US Fed Chair Nominee Hearing... 'Interest Rate Freeze Until December' Probability Rises

Kevin Warsh, nominee for Fed Chair, attends Senate confirmation hearing

On the 21st (local time), the day of the confirmation hearing for Kevin Warsh, nominee for Chairman of the U.S. Federal Reserve (Fed), market expectations for interest rates to remain frozen until the end of this year rose.

According to the Chicago Mercantile Exchange (CME) FedWatch Tool, as of 10:30 AM KST on the 22nd, the federal funds rate futures market reflected a 67% probability of the benchmark interest rate remaining frozen at its current level (3.50-3.75%) until December. This is 13 percentage points higher than the previous day.

U.S. Treasury yields also rose.

On the 21st, the yield on the 10-year U.S. Treasury bond rose by 4.10 basis points (1bp=0.01%p) to 4.293%. The yield on the monetary policy-sensitive 2-year bond rose by 5.9 basis points to 3.782%.

However, Bloomberg reported that these factors, such as strong economic indicators and West Texas Intermediate (WTI) crude oil prices again exceeding $90 per barrel, had a greater impact on reducing expectations for interest rate cuts than Warsh's testimony.

Candidate Warsh stated at the Senate Banking Committee's confirmation hearing today, "Presidents tend to prefer lower interest rates. The difference is that President Donald Trump expresses it very publicly, without proxies or prevarication."

He further emphasized, "But the Fed's independence rests with the Fed itself. The Fed leadership must decide for themselves what is right," adding, "I do not believe that the independence of monetary policy is threatened by elected officials expressing their views on interest rates."

He also stated that a "new inflation framework" is needed to better understand underlying price pressures.

He said, "It is true that inflation is less of a problem. That is, the pace of price increases is less severe than a few years ago. But hardworking Americans still feel the burden," adding, "This means that 'regime change' is needed in policy operations, and a new inflation framework is needed."

He did not mention what this framework would mean for interest rates.

Along with this, he pointed out, "Too many Fed officials are expressing opinions on where interest rates should go. This is quite unhelpful."

Reuters noted that these views could clash with the presidents of the 12 regional Federal Reserve Banks, who see public speaking as a core part of their job.