Fed chief nominee Warsh vows to keep monetary policy independent of politics

* Warsh's confirmation for top Fed job faces delay due to dispute over Powell criminal probe

* Senator Tillis vows to block confirmation until government drops investigation

* Warsh promises independence as Trump again says he expects rate cuts

By Howard Schneider

WASHINGTON, April 21 (Reuters) - Federal Reserve chief nominee Kevin Warsh told U.S. senators on Tuesday he would make monetary policy decisions independent of any advice or pressure from President Donald Trump, highlighting success in keeping inflation low as the "plot armor" that would insulate the central bank from criticism.

"Monetary policy independence is essential," Warsh said in a public statement delivered to members of the Senate Banking Committee who will recommend whether to confirm him to a seat on the Fed's Board of Governors as well as a four-year term as head of the central bank, while adding that it was "largely up to the Fed" to maintain that independence by succeeding in its goals and not straying beyond its mandate from Congress.

"I do not believe the operational independence of monetary policy is particularly threatened when elected officials - presidents, senators, or members of the House (of Representatives) - state their views on interest rates," the 56-year-old financier and former Fed governor said. "Congress tasked the Fed with the mission to ensure price stability, without excuse or equivocation, argument or anguish. Inflation is a choice, and the Fed must take responsibility for it. Low inflation is the Fed's plot armor."

Even before Warsh delivered his opening remarks, Trump repeated in a CNBC interview that he would be disappointed if his handpicked nominee to succeed Fed Chair Jerome Powell did not cut rates quickly. That expectation is a heavy lift for a central bank leader who needs to wrangle votes from colleagues still concerned about the impact of an ongoing oil price shock on inflation that is already running above the Fed's 2% target.

Warsh has said rate cuts are warranted because technological changes unleashed by artificial intelligence will raise productivity, a view other central bankers say may be true over time but won't necessarily make lowering rates appropriate in the short term.

The Fed has missed its 2% goal for more than five years, first due to the shock of the COVID-19 pandemic but more recently due to the influence of Trump administration tariffs and the high oil prices linked to the war in the Middle East, a potential issue for Republican lawmakers heading into the midterm elections in November.

TIMING OF VOTE UNCERTAIN Trump has repeatedly clashed with Powell over monetary policy since naming him Fed chief in his first term in the White House. Powell's tenure as head of the central bank formally ends on May 15, but he could conceivably remain longer in the office if Warsh's confirmation is delayed.

At this point the timing of a committee recommendation or full Senate vote is uncertain. Republican Senator Thom Tillis, a member of the committee, has said he will block Warsh's nomination until the U.S. Justice Department drops a probe of Powell that the senator regards as frivolous and part of Trump's effort to pressure the Fed into lowering rates or force Powell to resign. Though the policy meeting next week could be Powell's last as Fed chief, the standoff has raised the prospect that he will remain in the job even after his term formally expires. U.S. Attorney for the District of Columbia Jeanine Pirro, an ally of Trump, does not seem poised to drop the Powell probe, and the president does not appear to be pushing her to do so - even though that stance means potentially living with the current central bank chief for months longer or touching off another legal battle by trying to appoint a temporary replacement from among the other six Fed governors.

In the absence of a confirmed successor for the top job, the central bank in the past has named its own "pro tem" Fed chief. Powell's term as a central bank governor extends until 2028, meaning he could remain as a key policymaker even if Warsh is confirmed. Trump also has said he still may fire Powell if he doesn't vacate his governor's position. Such a move would surely invite a legal challenge, as did the president's attempt last summer to fire Fed Governor Lisa Cook.

It's an unprecedented situation for the U.S. central bank, where the handoff of authority has typically been collegial, and something Warsh will likely be quizzed about during the hearing. Warsh, who has added to his already massive family wealth in the 15 years since he left the central bank's board, will have the chance to detail how his extensive criticism of the Fed and its current leadership will translate into a different monetary policy approach or a new way to run a disparate organization.

The Fed has a Washington-based board and staff, but also includes a dozen regional banks, tens of thousands of system-wide employees, and duties that range from setting interest rates for the entire country to managing the payments system, supervising and regulating banks, administering swap lines with foreign central banks, and conducting research on anything from cryptocurrencies to rural health. Warsh has been deeply critical of Powell's leadership, and the hearing will be an opportunity to explain in more detail what he plans to do differently.

"The Fed must stay in its lane," Warsh said in his opening statement to the committee, echoing a standing conservative critique that the central bank's work on issues like climate change or economic equity, or comments about fiscal spending, were out of bounds.

Republicans, including Tillis, generally have been supportive of Warsh's nomination.

Democrats, meanwhile, say they have a healthy list of issues to raise, from Warsh's role at the Fed during the era of big bank bailouts during the 2007-2009 financial crisis, to why his recent financial disclosures include a promise to divest some of his more than $100 million portfolio rather than more details about the assets he owns. (Reporting by Howard Schneider; Editing by Paul Simao)