Federal Reserve Chairman Jerome Powell went out of his way to avoid making any politically charged remarks during Wednesday’s news conference, but President Donald Trump’s nomination of Kevin Warsh as the new Fed chair on Friday cast a different light on Powell’s comments.
Warsh, a former Fed governor, has been critical of the Fed since he entered Trump’s shortlist to replace Powell. In recent months, he has called on the Fed to rethink its economic model and pursue reforms and layoffs.
“What the Fed really needs to do is change the framework within which they operate,” Warsh said on Fox Business in October. “They need to change their model. They need to change a lot of personnel.”
Asked Wednesday what advice Powell would give his eventual successor, he suggested staying away from politics while actively engaging with members of Congress, the body that holds the Fed accountable and provides it with legitimacy.
Whether or not this was intentionally directed at Warsh, Powell also offered a strong defense of Fed personnel.
“It’s easy to criticize government agencies in many ways,” he said. “I would tell whoever it is: When you meet the staff of the Federal Reserve, you will meet the most qualified group of people you have not only ever worked with, but will ever work with. While not everyone is perfect, there is no group of professionals more dedicated to the public welfare than those who work at the Federal Reserve.”
Powell was also asked whether the Fed’s economic models focus too much on backward-looking data and fail to incorporate game-changing developments such as artificial intelligence.
He said such criticism was “meaningless” but acknowledged that macroeconomic structures are constantly changing.
For example, the coronavirus pandemic is the first in a century, as are Trump’s tariffs, creating a lot of uncertainty. Powell also insisted that when it comes to technological developments that increase potential output, such as artificial intelligence, “we’re all for it.”
“We know very well that this higher productivity may or may not persist,” Powell added. “There’s no one who doesn’t know about the possibility of increased productivity.”
He explained that the Fed is well aware that higher productivity means higher potential output, changing perceptions about inflation, economic growth and the labor market.
“That’s all in our model,” Powell said. “I mean, if it’s just a matter of using better models, get them on board. Where are they? We’ll take them. We’re certainly in touch with anyone who does economic modeling, and we always want to do better.”
