Warsh Promises Independence but Dodges Questions on Rates

"Kevin Warsh hit all the right notes to reassure his supporters on the committee that he will push forward his idea of regime change at the Fed," Joseph Brusuelas, chief economist at RSM. "He said nothing that will disrupt his path to being approved, if it makes it to the floor of the Senate."

Warsh's indication that the Fed should change a number of its current practices—and even how it approaches policy decisions—echoes what he's detailed in op-eds and speeches in the years since 2011, when he left his position as a Fed governor. Some changes, such as the frequency of the post-meeting press conferences, can be made by the Fed chief alone. Others would take broad cooperation from the central bank's 18 other policymakers.

Those other officials frequently speak publicly—something Warsh has said he disapproves of, but may not be able to change. Some larger moves, such as modifying or abandoning the quarterly economic forecasts and interest-rate projections that policymakers publish, may enjoy support among others.

"I do take him at his word, and I would expect that will occur should he take the helm," Brusuelas said of changes to Fed communication policies.

Warsh's Credibility a Key Question

Warsh's ability to placate the White House while maintaining credibility with investors on inflation was seen as a key test for him heading into the hearing. This morning, Trump said he'd be disappointed if Warsh didn't cut rates as soon as he took office.

Early in his testimony, Warsh blamed the Fed for allowing inflation to surge following the Covid-19 pandemic, and he said that quickly rising prices remain a problem for Americans. In response, he said, the central bank needs a new framework for dealing with persistent price pressures, but he did not offer any specifics.

"While it's true that inflation is less problematic—meaning the rate of change in prices is less severe—than it was some years ago, hard-working Americans are no doubt feeling it," Warsh said. "I think that means a regime change in the conduct of policy. I think that means a different, new inflation framework."

Warsh didn't say what that means for interest rates. Pressed by Democrat Chris Van Hollen whether he agreed with Trump's call for the Fed to lower rates to around 1 percent this year, Warsh dodged. "Unlike many of my colleagues past and present, I don't believe in forward guidance," he said. "I don't believe that I should be previewing for you what a future decision might be."

Warsh, a longtime advocate for shrinking the Fed's $6.7 trillion balance sheet, said any such move would take time and must be telegraphed well in advance. Warsh has previously said a reduction in the central bank's securities portfolio would enable the Fed to cut interest rates without igniting inflation pressures. But those comments increased concern that a rapid reduction might induce stress in money markets. Treasury Secretary Scott Bessent has also said that the Fed would approach any balance-sheet change in a slower manner.

Democrats challenged Warsh with questions meant to test his credibility. Asked by Warren whether Trump lost the 2020 presidential election, Warsh demurred, saying Congress certified Joe Biden as president after that vote.

Warsh also emphasized he would sell any undisclosed assets before being sworn in as Fed chair. Warsh and his wife, Jane Lauder, reported assets worth at least $192 million in financial disclosures filed as part of his nomination. But his total net worth is likely much larger and makes him one of the wealthiest Fed officials in the central bank's history.

Tillis Is Not yet on Board

Warsh's path to confirmation remains highly uncertain. Although Republicans on the panel praised Warsh, a key GOP member, Senator Thom Tillis of North Carolina, has vowed not to approve any Fed appointment until a Department of Justice (DOJ) investigation into the Fed and Chair Jerome Powell is closed. The investigation involves a building renovation and Powell's congressional testimony on the project. Tillis has said the probe is politically motivated, and his vow to hold up Warsh's confirmation has raised the possibility that Warsh won't be sworn in before Powell's term as chair expires on May 15.

Warsh declined to answer questions about the investigation into Powell or about Trump's attempt to fire Fed Governor Lisa Cook.

For his part, Trump has no plans to back down on the probe, according to a White House official. In an interview on CNBC this morning, Trump insisted that investigators must get answers on why the renovation costs—estimated at $2.5 billion, and which Trump claims will reach $4 billion—are so high.

In an interview today, Tillis told reporters he welcomes a proposal from the committee's chair, Senator Tim Scott, that Congress open an investigation into the Fed renovations, which would allow the DOJ to drop its probe.

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