Rounds backs Warsh’s inflation stance after Fed testimony

Sen. Mike Rounds, a South Dakota Republican on the Senate Banking Committee, said Federal Reserve Chair Kevin Warsh delivered the right message in his first round of congressional testimony as the central bank’s leader. For everyday investors and borrowers, the exchange matters because Warsh is now steering the Fed’s interest-rate policy, which affects borrowing costs such as 30-year mortgage rates.

Rounds told CNBC’s “Squawk Box” on Thursday that he approved of Warsh’s emphasis on bringing inflation under control and defending the Fed’s ability to make its own decisions. Inflation is the rate at which prices rise over time, and the Fed uses interest rates as one of its main tools to cool demand when prices climb too quickly.

“I think his message was a good message,” Rounds said on CNBC, referring to Warsh’s remarks before lawmakers. Rounds said Warsh began by discussing the need to control inflation and the Fed’s focus on that task.

Warsh appeared before Congress twice this week, CNBC reported, testifying in the House on Tuesday and then before the Senate Banking Committee on Wednesday. Lawmakers questioned him on inflation and the independence of the central bank, according to CNBC.

A new Fed chair under political pressure

Warsh became Fed chair in May, succeeding Jerome Powell. CNBC reported that President Donald Trump appointed Warsh after a prolonged push against Powell over interest rates. Trump had criticized Powell for not cutting rates, threatened to fire him, and his administration opened a criminal investigation into Powell while he was still leading the central bank, according to CNBC.

That backdrop put extra attention on Warsh’s comments about independence. Central bank independence means the Fed is expected to set monetary policy based on its economic judgment, rather than direct political pressure from the White House or Congress.

Rounds said he wants the Fed to retain that independence. “I want the Federal Reserve to be independent. I want them to make the decisions based on what they believe is right,” he said on CNBC.

Rates stayed put in Warsh’s first meeting

At Warsh’s first Fed meeting as chair in June, the central bank left interest rates unchanged, CNBC reported. Rounds said he agreed with that decision, even while saying lower mortgage rates remain a goal.

“We’d love to have inflation to come down and have interest rates on 30-year mortgages come down,” Rounds said on CNBC. He added that the issue would take time and said the Fed was “correct” to keep rates where they were in Warsh’s first meeting.

Higher interest rates can make borrowing more expensive for households and businesses. Lower rates can ease borrowing costs, but the Fed also weighs whether cutting rates could make inflation harder to control.

Rounds also linked Warsh’s inflation focus to work in Congress aimed at easing consumer costs. CNBC reported that Rounds pointed to a broad housing package recently passed by Congress that seeks to reduce costs for homebuyers and renters and limit the role of institutional investors in rental-home ownership.

For now, Rounds’ comments signal support from at least one Senate Banking Committee Republican as Warsh begins his tenure at a central bank still facing political scrutiny over inflation, rates and its independence from the White House.

This story draws on original reporting from CNBC.