Kevin Warsh, President Donald Trump’s Fed nominee, made his case to the Senate Banking Committee for his April 21 confirmation hearing. Calls for a policy and personnel regime change were front and center in Warsh’s testimony, potentially pleasing those who have been disappointed by the central bank’s record since 2020. But will it be enough to bring him over the finish line?
Fed Nominee on the Warsh-path
Trump has made it clear that he demands one thing from his next chairman: interest rate cuts now. He has wanted the institution, particularly Jerome Powell, to lower the benchmark federal funds rate to as low as 1% almost immediately, arguing that this is the final measure needed to realize his economic agenda. This might be challenging to achieve, but his Fed nominee could usher in sorely needed changes inside the Eccles Building.
Before the 22-member committee in the upper chamber, Warsh outlined his vision for the 113-year-old entity, arguing that it needs a new inflation framework and that policymakers do not have to constantly read the policy and economic tea leaves. Officials, he says, should not embrace conformity but rather engage in robust debate at policy meetings.
By implementing reforms, he noted, the Fed can reverse the missteps of the last several years, restore public confidence, and achieve its dual mandate of price stability and maximum employment.
“Once you let inflation take hold in the economy, it’s more expensive and harder to bring it down, and so the fatal policy error going back four or five years is still a legacy that we’re dealing with,” Warsh said. “I think that means a regime change in the conduct of policy. I think that means a different, new inflation framework.”
At the same time, this does not mean the system needs to drown out noise from elected officials.
“I do not believe the operational independence of monetary policy is particularly threatened when elected officials — presidents, senators, or members of the House — state their views on interest rates,” Warsh said in his opening remarks.
But Sen. Elizabeth (D-MA) believes Warsh will be the president’s “sock puppet,” despite having just one vote on the 12-person Federal Open Market Committee (FOMC).
Whether his efforts will be enough to secure the votes needed for confirmation remains to be seen. Sen. Thom Tillis (R-NC) has said he would block his confirmation until the investigation into Chair Powell and the Fed regarding the headquarters renovation is resolved. Sen. Catherine Masto Cortez (D-NV) praised Warsh’s inflation theories but noted other economists disagree. Sen. Mark Warner (D-VA) is reportedly a possible supporter for Trump’s Fed nominee. Sen. Bernie Moreno (R-OH) is optimistic that he will be confirmed as the new head of the Federal Reserve System.
Democrats, Disclosures, Divestments
Several Senate Democrats, including Sens. Warren and Jack Reed (D-RI), focused part of their questions on Warsh’s financial disclosures and potential divestments moving forward.
Warsh had released a 68-page report outlining his financial assets. With at least $100 million in holdings, he would become the wealthiest chairman in the Fed’s century-long history. But the disclosures were not enough for these officials, who questioned whether these investments were connected to President Trump and his family, and how he plans to divest.
The 56-year-old Fed nominee noted that he could not share the contents of his filings under a confidentiality agreement. While the Office of Government Ethics recorded that he was not in compliance with conflict-of-interest requirements, Warsh will be once he divests from these investments after confirmation.
“What I’ve disclosed, Senator, is all the information that is mine to disclose,” Warsh stated. "I agreed to divest virtually all of my financial assets, a large majority of which will be divested before I raised my right hand [to be] sworn into office by this body.”
What Comes May
The Senate Banking Committee has not scheduled a date for a confirmation vote. Republicans in the upper chamber may wait until the Department of Justice probe is completed. They might cast a vote after senators return from the May 4 break. Prediction markets expect the process to be completed by June 30. Until then, Powell has said he will stay on temporarily until his successor is formally installed, but President Trump says he will fire him if he does not step down on May 15.
What was once a boring institution that everyone ignored has morphed into a soap opera. Stay tuned for the next episode: Warshonomics Goes to the Eccles Building.
