White House economic adviser says Federal Reserve could cut rates after oil shock eases, looks ahead to new Fed chair

The US Federal Reserve could still have room to lower interest rates once the energy-driven supply shock fades, the director of the White House National Economic Council said Monday, arguing that productivity gains from artificial intelligence and capital spending should help contain inflation, and eyed the coming change in the Fed's helm.

Speaking to CNBC, Kevin Hassett said higher productivity is putting “downward pressure on inflation,” which in his view should ease pressure on the Fed and allow for lower borrowing costs. He also said he expects that to happen when Kevin Warsh, President Donald Trump’s pick to take over as Fed chair, assumes the post, slated for next month.

Hassett made the remarks even as oil prices remain elevated amid ongoing war-related supply shocks, arguing that the inflationary effects from energy would likely prove temporary once the market disruption passes.

The Fed last month left its benchmark federal funds rate unchanged at 3.5% to 3.75%, saying it would continue to assess incoming data, the outlook, and the balance of risks before considering any further policy moves.

Warsh, the nominee to replace current Fed Chair Jerome Powell, previously served as a member of the Federal Reserve Board of Governors from 2006 to 2011, including during the global financial crisis.

He also represented the Fed at G20 meetings and worked on international economic issues.

Trump has frequently criticized Powell, whose term is set to end in mid-May. Congressional approval is required for Warsh to take the post.