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Thursday June 04, 2026
(NEW YORKI) --Drivers stung by high gas prices have enjoyed some welcome relief over the last couple of weeks, even as the impact of the Iran war continues to choke off oil supply.
The national average price of a gallon of gas stood at $4.26 on Wednesday, marking a decline of 30 cents, or 6.5%, since a recent peak on May 21.
Still, prices remain well above where they clocked in before a historic oil shock set off by the war. In late February, the average gallon of gas ran less than $3.
The dropoff in gas prices owes to a decline in oil costs over the latter part of last month, which coincided with a slump in demand following Memorial Day weekend, some analysts said.
Still, they cautioned, gas prices may rise again as oil prices jump and the war shows little sign of an imminent resolution. If the war continues, some analysts said, gas price could top $5 a gallon by next month.
"It's so volatile," Patrick Penfield, a professor of supply chain practice at Syracuse University, told ABC News. "If the war ended, prices would likely go down. But if it continues, you'll see prices go up."
In Georgia, the state with the lowest average gas prices, a gallon costs about $3.79, AAA data shows. In all, the AAA data says six states currently sell gas at or below an average price of $4 per gallon.
By contrast, the cost of a gallon of gas in California stands at $5.99, making it the state with the highest prices, AAA data shows. Even in California, however, the average price has fallen about 10 cents over the past week.
At the outset of the war, gasoline prices surged in response to Iran’s effective closure of the Strait of Hormuz, a maritime trading route that facilitates the transport of about one-fifth of global crude supply.
Oil prices began to fall in mid-May, however, as Iran and the U.S. appeared willing to strike an agreement that would reopen the strait. Crude oil is the main ingredient in auto fuel, accounting for more than half of the price paid at the pump, according to the federal U.S. Energy Information Administration.
On Friday, U.S. oil prices fell as low as about $86 a barrel, marking a drop of about 20% over a 10-day stretch.
"Gas prices have seen a big push because crude prices have dropped. Crude prices have dropped largely because the president has been indicating that we're close to an agreement with Iran," Ramanan Krishnamoorti, a professor of petroleum engineering at the University of Houston, told ABC News.
The U.S. is a net exporter of petroleum, meaning the country produces more oil than it consumes. But since oil prices are set on a global market, U.S. prices move in response to swings in worldwide supply and demand.
Oil prices have ticked up in recent days, but they remain below $100 a barrel. As long as oil prices remain under that benchmark, gas prices may continue to hold steady or even decline, Denton Cinquegrana, chief oil analyst at Dow Jones Energy, told ABC News.
A near-term drop in gas prices appears possible because gas sellers are holding onto unusually large profit margins, meaning they could reduce retail prices even if their input costs maintain current levels, Cinquegrana said. Over the past two years, the average margin for sellers came in at about 34 cents per gallon, he added, but it currently stands at 50 cents per gallon.
"There's still some room for gas prices to move down," Cinquegrana said.
Looking weeks or months into the future, however, analysts cautioned about a rise in oil and gasoline prices unless normal tariff resumes in the Strait of Hormuz.
"It's still possible later this summer, even ahead of July 4, we could see the national average pass $5 a gallon," Patrick De Haan, a petroleum analyst at GasBuddy, told ABC News Live on Monday.
"We could be seeing much higher gas prices in very short order if the strait doesn't reopen," he added.
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(NEW YORK) -- U.S. Treasury yields soared in recent days as the Iran war stoked inflation fears, threatening to drive up borrowing costs for everything from mortgages to credit cards to auto loans.
The yields on 30-year bonds – the amount paid to a bondholder annually – touched their highest point since 2007. Ten-year Treasury yields peaked at about 4.69% on Tuesday, marking a roughly three-quarter percentage point jump from the start of the war on Feb. 28.
The yield on 10-year Treasuries retreated on Wednesday, registering at 4.58%. Still, yields exceed the level reached during a bond selloff in the aftermath of President Donald Trump’s “Liberation Day” tariffs in April 2025.
Since bonds pay a given investor a fixed amount each year, the specter of inflation risks higher consumer prices that would eat away at those annual payouts. In this case, a global oil shock has pushed up energy prices which in turn has trickled into other costs, such as groceries.
As a result, bonds have become less attractive. When demand falls, bond yields rise.
“It’s really all about the Iran war and its inflationary impact,” Ted Rossman, a senior industry analyst at Bankrate, told ABC News.
High bond yields make borrowing more expensive for average Americans because Treasury rates influence the rates offered by lenders.
Long-term Treasury yields help set interest payments for mortgages, credit cards, car loans and just about any other type of borrowing, Patrice Carrington, a professor of real estate at New York University, told ABC News.
The reason for the rise in borrowing costs is that regulated lenders are required to hold reserve assets, often made up in part by U.S. Treasuries, Carrington added. When Treasury yields rise, it raises the costs incurred by banks holding Treasuries on their books. Lenders, in turn, offset those added expenses with higher borrowing costs.
“The bank will pass along that higher cost of capital to any consumer loan,” Carrington said.
The onset of this pain for consumers is exemplified by the housing market, where the average interest rate for a 30-year fixed mortgage stands at 6.72% as of Monday, Mortgage News Daily data showed. Mortgage rates have climbed three-quarters of a percentage point from pre-war levels.
“That’s a really big jump,” Rossman said.
Each percentage-point rise in a mortgage rate can impose thousands or tens of thousands of dollars in additional costs each year, depending on the price of the house, according to Rocket Mortgage.
Credit card rates, by contrast, have remained flat over the course of the Iran war, though at heightened levels, Rossman said.
The average credit card interest rate stands at 19.57%, just slightly below where it stood before the war began, Bankrate data showed. At the start of 2026, futures markets expected the Fed to likely cut interest rates at least once by the end of the year, which would put downward pressure on credit card rates.
As the Fed weathers a renewed bout of inflation, however, markets estimate about a 50% chance of interest rates remaining unchanged over the course of the year and a 37% chance of a rate hike, according to the CME FedWatch Tool, a measure of market sentiment. Markets peg the odds of a rate cut this year at less than 2%.
As a result, credit card rates "are staying higher for longer" than many observers anticipated, Rossman said.
Analysts differed in their recommendations for consumers weighing whether to move forward now with securing a loan or wait for a potential decline in interest rates.
Liu Lu, a professor at the Wharton School at the University of Pennsylvania, said mortgage rates are unlikely to decline substantially in the near-term, meaning borrowers who can afford a loan at current rates may as well take the plunge.
“I wouldn’t bet on trying to catch the opportune moment,” Lu told ABC News.
Carrington, on the other hand, counseled patience for loan seekers.
Eventually, the economy will falter and the Fed will cut interest rates, pushing down borrowing costs, according to Carrington.
“We’re long overdue for a downturn,” Carrington said. “I absolutely think borrowers should wait.”
In the meantime, the impact of elevated bond yields on consumers isn't entirely negative. The trend means better returns for investors who place their money into financial instruments such as money market funds or high-interest savings accounts, which are historically safer investments than the stock market.
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(NEW YORK) -- A jury on Monday found that Elon Musk waited too long to bring claims accusing OpenAI, under Sam Altman’s leadership, of abandoning its public-benefit mission as it moved toward a for-profit structure.
The nine-person advisory jury determined that the claims against OpenAI and Altman were barred due to the statute of limitations. Judge Yvonne Gonzalez Rogers accepted the determination and dismissed the claims.
The three-week trial at a federal courthouse in Oakland, California, featured testimony from Musk and Altman, as well as Microsoft CEO Satya Nadella.
When Musk sued OpenAI and Altman two years ago, he claimed that the company abandoned its mission of benefiting humanity.
Musk, a co-founder of OpenAI, said he reached an agreement with the company's leaders on the nonprofit course of the firm when it launched in 2015.
Musk accused the company of later breaching agreement when it made ChatGPT-4 available for use by Microsoft -- meaning the tech giant got access to the then-most powerful version of its popular chatbot under an exclusive licensing agreement. Microsoft and OpenAI have renegotiated the exclusive licensing agreement, allowing OpenAI to strike deals with other tech firms.
OpenAI rebuked the charges, calling them "baseless." Microsoft also denied any wrongdoing. Musk, the world's richest person, counts $803 billion in wealth, according to Forbes. He was seeking $150 billion in damages from the tech companies, as well as the removal of Altman from OpenAI's board of directors.
Musk also sought a legal order that requires OpenAI to abide by its alleged founding mission of aiding humanity and retaining its nonprofit form
OpenAI, which is not publicly traded, valued itself at $852 billion after a round of funding in March. Microsoft's value -- as measured by market capitalization -- stands at about $3.1 trillion.
Musk pleaded two claims against OpenAI: unjust enrichment and breach of charitable trust.
Lawyers for Altman argued that Musk was motivated by a pursuit of control over OpenAI, rather than an effort to safeguard its non-profit status. In fact, Musk sought to fold OpenAI into Tesla -- a move that would have absorbed the venture into a for-profit entity, lawyers for Altman said in a legal filing.
In 2018, Musk told a former OpenAI employee that financial support from Tesla would help OpenAI compete with tech giant Google, the filing said.
"Tesla [was] the only path that could even hope to hold a candle to Google," Musk said, according to the legal filing.
For his part, Musk said in the lawsuit that the agreement on OpenAI's non-profit status was memorialized in a legal filing when OpenAI was incorporated.
In the lawsuit, Musk alleged that Altman and OpenAI President Greg Brockman reaffirmed the founding agreement in written messages over the ensuing years.
"[I] remain enthusiastic about the non-profit structure!" Altman wrote to Musk in 2017, according to the lawsuit.
Musk, who helped bankroll OpenAI, launched a rival for-profit AI company in 2023 called xAI, which built a chatbot that competes with ChatGPT.
Acknowledging his previous criticism of the pace and ambitions of AI development, Musk said in a conference call on X in July 2023 that he entered the industry reluctantly.
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(NEW YORK) -- A global pandemic that put millions of Americans out of work within days. The highest inflation in four decades. An unprecedented federal criminal investigation.
Fed Chair Jerome Powell faced a succession of crises over his 8-year tenure atop the central bank, which ends on Friday. Powell’s decisions along the way held stakes as concrete as the budgets of everyday Americans and as heady as the political independence of a pillar institution.
President Donald Trump’s Fed Chair nominee Kevin Warsh is set to take the helm, inheriting a resilient economy by some measures, though one suffering from a renewed bout of inflation.
Powell said last month that he would take the unusual step of staying on at the central bank's 12-person board of governors after his term expires. The move grants Powell a role in interest-rate policy that could last until 2028, though he says he will step down once a Fed inspector general's investigation into a renovation of the central bank headquarters is closed.
The transition offers an opportunity to look back at Powell’s tenure, which spanned two presidents, three Treasury secretaries and 66 interest-rate decisions.
"You don't choose your challenges, but you do choose how you respond," Claudia Sahm, chief economist at New Century Advisors and a former Fed official, told ABC News. "In the end, Powell's legacy will be judged by those outcomes."
When Trump nominated Powell to become Fed chair, Trump described him as a "consensus builder" who "understands what it takes for our economy to grow."
Powell, a former investment banker and Treasury official under President George H.W. Bush, assumed the role in 2018. At the time, the economy was humming, the unemployment rate clocked in at a historically low level and inflation stood just a tick above the Fed’s target rate of 2%.
Powell hiked interest rates four times in his first year, putting strain on the stock market but leaving the Fed in position to stimulate the economy with rate cuts in the event of a slowdown. Policymakers wouldn’t have to wait long.
In the early months of 2020, the COVID-19 pandemic put tens of millions of Americans into lockdown, halting business across industries like restaurants and hospitality, while putting a large swathe of the labor force out of work.
At an emergency meeting in March 2020, Powell slashed interest rates to near-zero levels in an effort to stimulate a battered economy.
“Families, businesses, schools, organizations, and governments at all levels are taking steps to protect people’s health. These measures, which are essential for containing the outbreak, will nonetheless understandably take a toll on economic activity in the near term,” Powell told reporters at the time.
The unemployment rate soared from 4.4% in March to 14.7% in April, U.S. Bureau of Labor Statistics data showed.
To supercharge the recovery, Trump and President Joe Biden enacted economic stimulus meant to support people who'd lost their jobs or faced other hardship. Alongside low interest rates, that spending helped bring about a speedy economic recovery from the downturn.
The COVID-19 recession lasted only two months, making it the shortest in U.S. history, according to the National Bureau of Economic Research.
The speedy recovery vindicated the Fed's decision to slash interest rates, though it hadn’t been a particularly difficult choice, Alan Blinder, a professor of economics at Princeton University and former vice chairman of the Federal Reserve, told ABC News.
“The dropping of rates to the floor was both necessary and appropriate, and in a real sense, obvious,” Blinder said.
A bout of acute inflation soon took hold, however, emerging as a result of a supply shortage imposed by the COVID-19 pandemic and exacerbated by the Russia-Ukraine war. Powell initially downplayed the price increases, describing them as “transitory.” It proved a consequential mistake -- and Powell would later admit his error.
Annual inflation peaked at a 40-year high of 9.1% in June 2022. By then, Powell had begun to ratchet up interest rates and it would continue over the following year. The aggressive series of rate hikes put the central bank’s benchmark rate at its highest level since 2001. The move sent mortgage and credit card rates soaring.
By June 2023, annual inflation had plummeted to 3%, but Americans remained widely dissatisfied with price increases long afterward. Many economists forecast a recession and the type of job losses it typically entails. Fortunately, the downturn never came to pass.
"Inflation stayed high for too long but once it came down, it came down really fast. It came down without creating unnecessary pain in the labor market," Wendy Edelberg, director of the Hamilton Project and senior fellow in economic studies at the Brookings Institution, told ABC News.
In September 2024, less than two months before the presidential election, the Fed cut interest rates by 0.5%. The decision drew criticism from allies of Trump, who considered the move a potential boost for the economy that would benefit incumbent Democrats. Trump went on to win the election.
Within weeks of his return to the White House, in early 2025, Trump voiced public criticism of Powell, urging him to cut interest rates. The attacks intensified criticism of Powell that had begun in Trump’s first term.
Over the ensuing months, Trump began to slam Powell for cost overruns in a renovation project at the Fed’s headquarters in Washington, D.C. Last July, Trump made the first official trip to the Fed by a sitting president in almost 20 years, donning a hard hat as he toured the renovation with Powell.
The Fed attributed spending overruns to unforeseen cost increases, saying that its building renovation would ultimately "reduce costs over time by allowing the Board to consolidate most of its operations," according to the central bank's website.
By January, the Department of Justice had opened a criminal investigation into Powell, ratcheting up an extraordinary clash between the White House and the Fed. It was the first criminal probe of a Fed chair in the 113-year history of the central bank.
The probe centered on Powell’s testimony to Congress last year about the cost overruns. Powell issued a rare video message rebuking the investigation as a politically motivated effort to influence the Fed's interest rate policy.
"No one -- certainly not the chair of the Federal Reserve -- is above the law," Powell said. "But this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure."
Trump previously denied any involvement in the criminal investigation. The DOJ moved to drop its criminal probe into Powell last month. Washington U.S. Attorney Jeaninne Pirro said the investigation into the office renovation would be taken up by the Fed’s inspector general.
“The attack on the Fed chair was appalling,” Rebel Cole, a professor of finance at Florida Atlantic University who formerly worked at the Federal Reserve, told ABC News. “Powell stood up to it.”
Warsh, a former Fed official, will serve a 4-year term as chair. He is set to lead the Fed in a challenging period for central bank policymakers.
Inflation rose for a second consecutive month as the U.S.-Israeli war with Iran continued to send gasoline prices surging in April, government data on Tuesday showed. Annual inflation jumped to its highest level in three years, according to the U.S. Bureau of Labor Statistics.
Despite the disruption, some measures of economic health have proven resilient.
The unemployment rate held steady at a historically low level of 4.3% in April, leaving it little changed from when Powell began his tenure in 2018.
"The economy is pretty good but far from perfect," Blinder said, faulting Powell in part for elevated inflation, while attributing much of the blame to the Iran war. At the same time, Blinder praised Powell for his commitment to the independence of the Fed.
"That's the legacy that Warsh is inheriting," Blinder said.
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(NEW YORK) -- Hiring slowed in April as a rise in fuel prices hammered shoppers weeks into the war with Iran, U.S. government data on Friday showed.
The U.S. added 115,000 jobs in April, according to the report, which marked a cooldown from 178,000 jobs added in March. The reading for April exceeded economists' expectations.
The unemployment rate held steady at 4.3% in April, the Bureau of Labor Statistics (BLS) said. Unemployment remains low by historical standards.
The U.S. Bureau of Labor Statistics (BLS) collected the previous month's survey data through the second week of March, before the full effects of the oil shock set off by the war.
As in previous months, the health care industry stood out as a top source of hiring in April, adding 37,000 jobs, the BLS said. The retail sector, as well as transportation and warehousing, also contributed to the increase in hiring.
Employment in the federal government continued to decline in April, shedding 9,000 jobs, the BLS said. The federal government has lost 348,000 jobs, or nearly 12% of its workforce, since October 2024, a month before President Donald Trump was elected.
The hiring figure for March was revised upward from 178,000 jobs added to 185,000 jobs added. Hiring for February, however, was revised downward from a loss of 133,000 jobs to a loss of 156,000 jobs.
The fresh data arrived as the war continues to drive up gasoline prices and borrowing costs, threatening a drag on the economy.
The U.S. added an average of about 15,000 jobs per month in 2025, BLS data showed. That performance indicated a drop-off from 186,000 jobs added each month in 2024.
The Middle East conflict, which began on Feb. 28, prompted Iran's effective closure of the Strait of Hormuz, a critical waterway that facilitates the transport of about one-fifth of the worldwide supply of oil.
The U.S. is a net exporter of petroleum, meaning the country produces more oil than it consumes. But since oil prices are set on a global market, U.S. prices move in response to swings in worldwide supply and demand.
The price of an average gallon of gas stands at $4.54 as of Friday, marking an increase of $1.56 per gallon since the war started, AAA data showed. That amounts to a roughly 50% jump in about two-and-a-half months.
In theory, a prolonged oil shortage could drive up prices for a vast array of goods, sapping energy from consumer spending, which powers most of the nation’s economic growth.
A potential jump in costs for additional goods delivered through the Strait of Hormuz -- such as fertilizer and diesel fuel -- could also raise prices beyond gasoline, putting pressure on the Federal Reserve to hike interest rates in an effort to quell inflation.
Last month, Fed Chair Jerome Powell described the economic outlook as "highly uncertain."
"We're kind of waiting to see what happens with events in the Middle East," Powell said.
The Fed has opted to hold interest rates steady at three consecutive meetings since the outset of 2026. Before that, the Fed cut interest rates a quarter-point three straight times.
The benchmark interest rate stands at a level between 3.5% and 3.75%. That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.
If the Fed moved to raise interest rates, it would hike borrowing costs for many consumer and business loans, risking a slowdown in hiring.
Markets peg a roughly 70% chance of interest rates holding steady for the remainder of this year, according to the CME FedWatch Tool.
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(NEW YORK) -- Sky-high gasoline prices are hammering drivers across the United States as the Iran war chokes off global oil supply. California, however, may be feeling the sting more than anywhere else.
The average price of a gallon of gasoline in California clocks in at $6.13, standing 36% higher than the national average, AAA data showed. Some elected officials in the state have warned of a potential oil and gas shortage that could push prices up even further.
Siva Gunda, the vice chairman of the California Energy Commission, on Tuesday said at a hearing of the state assembly that California retains enough gasoline to satiate demand over the coming weeks.
"I do not see presently -- at least up to six weeks -- a supply shortfall," Gunda said. "Beyond that, based on what we're hearing from the industry and what we've observed, the pricing will move molecules to California, but it will come at a price."
David Alvarez, a Democratic California state assembly member who represents Southern San Diego, warned of the potential impact on consumers.
"For six weeks, at least, there seems to be some certainty. But almost as certain is if this situation continues after six weeks, we would likely see some price increases," Alvarez said.
Fuel prices in California typically run higher than other states, even in the best of times. That usual price disparity stems from regulations and taxes imposed in the Golden State, among other factors.
The Iran war has exacerbated the price pressure, exposing California's dependence in large part on foreign imports, some analysts said. A shutdown of some key oil refineries in recent months worsened California's vulnerability, slashing the state's gasoline output in the absence of alternative fuel sources.
Still, the drop-off in gas supply is unlikely to produce a shortage of product at local gas stations, since an ongoing surge in prices should deter some buyers, analysts said. Under such a scenario, known as "demand destruction," high prices make gas unaffordable for some drivers, forcing them to forgo gasoline use altogether.
"A shortage within the continental U.S. would take a really extreme situation, since prices respond to supply and demand," Susan Bell, a senior vice president at the consulting firm Rystad Energy, told ABC News.
The Middle East conflict, which began on Feb. 28, prompted Iran's effective closure of the Strait of Hormuz, a critical waterway that facilitates the transport of about one-fifth of the worldwide supply of oil. As a result, global oil prices have soared more than 50%.
The vast majority of oil that passes through the strait is bound for Asian markets, but some of it reaches the United States, including California. That dependence has worsened a widely felt problem: since oil prices are set on a global market, prices have climbed for just about everyone as buyers chase fewer barrels of crude.
California imports about three-quarters of its oil from foreign nations and Alaska, California Energy Commission (CEC) data shows. Roughly 30% of the state's oil comes from the Middle East, especially Iraq and Saudi Arabia, according to the agency.
"California is challenged buying crude oil because they did buy from the Middle East," Bell said.
The oil bottleneck has driven up the price of crude, straining the state's supply chain. But the shortfall of gasoline in the state owes primarily to a decline in the availability of refined products, some analysts said.
California ships in a portion of its auto fuel from Asia, but those imports have been disrupted by the war, they added.
The shutdown of two major oil refineries in recent months has diminished the state's ability to make up for the lost gasoline with in-state production, they added. A longstanding absence of adequate pipeline infrastructure connected to other states, meanwhile, has prevented California from turning to domestic supply.
Gasoline inventory in the state averaged 9.55 million barrels over the four weeks ending on April 24, CEC data shows. That figure puts inventories near the lowest level on record dating back to 2005, according to a Reuters analysis. That total stock includes non-California gasoline, blending components and California's gasoline blend.
"California has designed an energy island in terms of the products we actually use. We're not connected to the rest of the U.S. as efficiently as many other states are," Paasha Mahdavi, a professor of energy governance and political economy at the University of California, Santa Barbara, told ABC News.
As a result, Mahdavi added: "There's a crunch hitting gas stations."
Despite the supply squeeze, California is unlikely to suffer from long lines at gasoline stations or customers leaving with empty tanks, some analysts said.
Rather, the price of gasoline will continue to move up, reaching such heights that some buyers will turn to alternatives or simply go without fuel, Severin Borenstein, a professor of Business Administration and Public Policy at the University of California, Berkeley, told ABC News.
If public officials were to put a price cap on gasoline, then customers would likely flock to the pump and empty inventories, Borenstein added. As prices surge, however, customers will fall out of the market instead.
"We don't have any gas lines because we don't regulate the price of gas," Borsenstein told ABC News. "As much as people hate high gas prices, they hate gas lines even more."
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(NEW YORK) -- The United States economy grew at a solid pace over the first three months of 2026, rebounding from sluggish performance at the end of last year, a government report on Thursday showed.
The economy grew at an annualized rate of 2% in the first quarter, marking an acceleration from 0.5% growth recorded in the previous quarter. The performance came in slightly below economists' expectations.
The fresh data covers a period mostly before the outset of the Iran war on Feb. 28, which sent gasoline prices surging and prompted warnings of a possible recession.
The jump in economic output over the first quarter owes to a rise in government spending, exports and investment, the U.S. Commerce Department said.
Consumer spending slowed down from the previous quarter, however, providing a cautionary note for the nation's outlook. Consumer spending accounts for about two-thirds of U.S. economic activity.
Households, meanwhile, are weathering a surge in prices as a result of an oil shock set off by the Iran war.
The Personal Consumption Expenditures Price Index, a measure of inflation preferred by the Federal Reserve, increased 3.5% in March, the report showed. That reading marked a jump from a 2.8% rate in the previous month.
The Middle East conflict prompted Iran's effective closure of the Strait of Hormuz, a critical waterway that facilitates the transport of about one-fifth of the global supply of oil and natural gas.
The average price of a gallon of gas stands at $4.30 as of Thursday, hitting the highest level in four years.
The Federal Reserve held interest rates steady on Wednesday, in part due to the recent rise in costs. The benchmark rate stands at a level between 3.5% and 3.75%.
The solid economic performance at the outset of this year may allow the Fed to keep interest rates elevated for longer as it seeks to avert a prolonged rise in prices amid the Iran war.
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(WASHINGTON) -- A Senate committee on Wednesday voted to advance Fed chair nominee Kevin Warsh, clearing a key hurdle in his path to replace Fed Chair Jerome Powell before his term ends next month. Warsh's nomination will move to a confirmation vote on the floor of the upper chamber.
The Senate Banking Committee voted 13-11 to approve the nomination on a party-line vote, with Republicans supporting the nomination and Democrats opposing it.
The vote comes days after the Department of Justice moved to drop its criminal probe into Powell. Before that, Warsh had faced a bipartisan stonewall in the Senate Banking Committee over the probe.
Sen. Thom Tillis, R-N.C., who previously vowed to oppose Warsh's nomination on account of the investigation, said he would flip his vote after the investigation was set aside. Tillis voted to approve the nomination on Wednesday.
The probe into Powell focuses on alleged false testimony to Congress about an office renovation. Powell, who was appointed by Trump in 2017, has rebuked the investigation as a politically motivated effort to influence interest-rate policy.
Powell's term as Fed chair ends on May 15, but he said last month he would stay in the position until Warsh is confirmed.
Warsh, a former Fed official, is currently a fellow at a conservative think tank called the Hoover Institution, which is based at Stanford University.
At testimony before the Senate Banking Committee last week, Democrats sharply criticized Warsh, saying the independence of the Fed would be at risk if Warsh were to take policy cues from Trump.
In his opening remarks, Warsh voiced support for the independence of the Fed in its role setting interest rates. He used the term "monetary policy" to describe the central bank's task of adjusting benchmark borrowing costs.
"Monetary policy independence is essential. Monetary policymakers must act in the nation's interest," Warsh said.
Still, Warsh defended the right of public officials, including presidents, to voice their views on interest-rate policy, saying such comments do not infringe on Fed independence.
"Central bankers must be strong enough to listen to a diversity of views from all corners," Warsh said.
Sen. Elizabeth Warren, D-Mass., the top Democrat on the committee, responded directly to Warsh's defense of a president's right to criticize the Fed, saying the federal investigation of Powell amounts to a pressure campaign that extends beyond public criticism of Fed policies.
"You said it’s perfectly fine for elected officials to state their views on interest rates. But that’s not what Donald Trump is doing," Warren said, addressing Warsh.
Republicans, including Sen. Tim Scott, R-S.C., the chairman of the Senate Banking Committee, praised Warsh, saying the Fed nominee would focus central bank policy on economic stewardship. During the tenure of President Joe Biden, Scott claimed, the Fed shifted some of its attention to the implications of issues like climate change.
"An independent Federal Reserve is essential to achieving its mission. That independence must be protected," Scott said.
During his term as a Fed governor in the late 2000s and early 2010s, Warsh gained a reputation as an interest-rate “hawk,” meaning he generally preferred higher interest rates as a means of ensuring low and stable inflation.
In recent months, however, Warsh has voiced support for lower interest rates, rebuking the Fed’s concern about inflation risk posed by a flurry of new tariffs issued last year.
The Senate committee vote came hours before the Fed is set to announce its latest decision on the level of interest rates. The central bank is widely expected to hold interest rates steady.
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