New Trump pick's 'credibility problem' made worse by his 'dangerous' plan: analyst

President Donald Trump's choice for the new Federal Reserve Chair has hit a major snag that could make confirming Kevin Warsh tricky.

Analysis from the New York Times' Editorial Board suggests that, should Warsh be confirmed as the next Fed Chair, an already clear problem over his dependability will worsen. The team wrote, "Kevin Warsh looks great on paper. But Mr. Warsh has a credibility problem.

"Central to the Fed’s mission of managing the American economy is the institution’s independence. The Fed’s board, like the Supreme Court, is composed of a group of experts who are chosen by presidents but who do not take directions from the White House."

Warsh has confirmed that, should he be made Fed Chair, he would look to include the Department of the Treasury in decisions relating to investments and interest rates.

"In a worrying sign for the Fed’s independence, Mr. Warsh has proposed to involve the Treasury Department in decisions about the central bank’s balance sheet," the NYT team wrote. "The Fed makes investments to manage interest rates, raising or lowering borrowing costs for businesses and consumers.

"It currently holds $6.7 trillion, mainly in bonds issued by the federal government and in mortgage-backed securities. Mr. Warsh wants a smaller balance sheet, and he wants to sell mortgage bonds. He argues that investing in mortgage bonds encroaches on the role of fiscal policymakers, because it targets interest rates in a specific sector of the economy.

"He says that he wants the Treasury to participate in the decision-making. The proposal is narrow and technical, but the precedent is dangerous. It would give Treasury officials, who answer to the president, a formal role in shaping the Fed’s monetary policy."

Trump has been attempting to remove current Fed Chair Jerome Powell for months, primarily over monetary policy disagreements. Trump has repeatedly called for Powell to lower interest rates significantly, but Powell has insisted that rates remain elevated to combat inflation.

When unable to remove Powell directly by law, Trump launched a criminal investigation into Powell through U.S. Attorney Jeanine Pirro, alleging mismanagement of Federal Reserve headquarters renovation costs.

The investigation is now blocking confirmation of Trump's replacement nominee, Kevin Warsh, effectively prolonging Powell's tenure rather than ending it.