LEILA FADEL, HOST:
So if Kevin Warsh is confirmed, how might he affect monetary policy? Let's ask economist Glenn Hubbard. As chair of the Council of Economic Advisers under President George W. Bush, Hubbard worked with Warsh, who at the time was a National Economic Council staffer. Good morning and welcome to the program.
GLENN HUBBARD: Good morning. Thank you.
FADEL: So given that you worked with Warsh, how do you think he would do if confirmed?
HUBBARD: I think he will do very well. I mean, Kevin is a quick study on economics and policy. He's also, very importantly for Fed chair, a team builder. I just heard on the program, obviously, the fact that he's a leader of a committee, not a sole vote. So I think that political skill, small P political skill, will serve him well. And his later preparation at serving as a Fed governor only adds to that.
FADEL: And what will you be listening for during today's confirmation hearing?
HUBBARD: Well, I'm listening for three things, and given what Warsh filed earlier, I think we'll probably hear them. One is to talk about credibility and independence. If the central bank is not independent, it simply can't do its job for price stability, for maximum employment and for financial stability. The second is to hear him talk about purpose.
The Fed has wandered a lot in recent years. I share that view with Kevin Warsh. And he should be clear, what is the Fed's purpose? Congress has been clear it's price stability, it's maximum employment, it's financial stability. I think Warsh refers to that as staying in lane. And then the third thing is to talk about strategy. You know, what is his approach to rates? What is his approach to the balance sheet?
FADEL: Now, we just heard there from Scott Horsley that Warsh used to be worried about cutting interest rates. Now he's more supportive, which is something President Trump has been calling for. Assuming he's confirmed, what do you expect him to do?
HUBBARD: I don't expect the Fed to cut rates immediately, whoever the Fed chair is, largely because of the economic situation. Inflation is stuck well above the Fed's target, and there's still pressures from the war in Iraq - in Iran. So I think there are obvious issues to look at, like artificial intelligence, going forward. But that's not a today issue. If anything, the productivity boom from artificial intelligence raises, not lowers, real interest rates.
FADEL: What is the immediate, today issue?
HUBBARD: I think for the Fed, today is really, what do you do about inflation that's stuck above your target? And then later, you can talk about the balance sheet, communication, things like that. But No. 1 on the public's mind and probably the banking committee's mind is why is inflation so high?
FADEL: And in what ways would Warsh be a different leader than Jerome Powell?
HUBBARD: Well, I think they'll be similar in many respects, you know, good negotiating skills, good team building, good consensus skills. I think what Warsh will do is be perhaps more clear about what the Fed's purpose is. I think that will be a big challenge for him early on. Whenever you take over an organization, first step is to say, why are we here? What's the purpose? Congress has been pretty clear over time, and I think Warsh will reiterate that.
FADEL: Now, Politico published Warsh's expected opening statement for today's hearing. And he writes that a president saying he wants lower interest rates does not particularly threaten the central bank's independence. Do you agree?
HUBBARD: Yes and no. So not to sound too much like an economist.
FADEL: (Laughter).
HUBBARD: Yes, in the sense that presidents are entitled to their opinion. President Trump is hardly the first president that's had a point of view on the Fed. But going after the Fed in terms of actions against governors or the building or things like that are crossing a line in my view. But having a view on interest rates, the president's entitled to his like anyone else.
FADEL: Now, you mentioned inflation as the first order of business for any Fed chair. What should the Fed do to address inflation?
HUBBARD: Well, I think the Fed first should watch and wait, that is, not cut rates in this environment until both the pre-February 28 inflationary pressures and the Iran war inflationary pressures are clearer. And then the Fed can look for other tools down the road, other stories it has about technology and AI. But I think the first step is to stand pat.
FADEL: Now, Warsh has extensive connections with Silicon Valley. And his financial disclosures indicate he's invested in a number of startups that come with some risk. Could that raise any red flags for lawmakers as they weigh whether to confirm him?
HUBBARD: I don't think so. You know, in general, I think Fed officials have tried to do what they think is right. If Warsh is confirmed, he will have to put his assets into, you know, different arrangements as all officials do.
FADEL: Glenn Hubbard chaired the Council of Economic Advisers under President George W. Bush. He also worked with Kevin Warsh, who will be in a confirmation hearing today. Thank you for your time.
HUBBARD: My pleasure. Transcript provided by NPR, Copyright NPR.
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