By Nick Timiraos
Kevin Warsh, President Trump's pick to lead the Federal Reserve, fielded questions at his confirmation hearing Tuesday about his commitment to an independent monetary policy, his pre-nomination argument that AI-driven productivity gains would give the central bank room to cut interest rates and his plans to divest more than $100 million in financial holdings he has declined to fully disclose.
Here are several moments that stood out at the Senate Banking Committee's hearing.
A testy exchange with Warren
Sen. Elizabeth Warren (D., Mass.) used her opening statement to brand Warsh as both a "sock puppet" for Trump and an opportunist whose views on rates have tracked the availability of the Fed chairmanship rather than the state of the economy. When her questioning turn came, she tried to force Warsh to prove she was wrong. He mostly declined to play.
"Independence takes courage. Let's check out your independence and your courage," she said before asking if Trump lost the 2020 election. Warsh wouldn't answer directly.
"I'm just asking you a factual question," she said. "I need to measure your independence and your courage."
After Warren tried a third time, Warsh pivoted, pointing to how the Fed had sowed the seeds of a "huge inflation problem" that year. Warren's point was that a Fed chair who can't bring himself to state plain facts that might displease the president who nominated him isn't going to stand up to that president when it matters. It was a theme Democrats returned to throughout the hearing.
Warsh says the Fed needs 'fundamental policy reforms'
Asked by committee chairman Tim Scott (R., S.C.) about how he would address affordability, Warsh provided a stiff indictment of the institution he hopes to lead. "The Fed missed its mark," he said. "The fatal policy error" of 2021 and 2022 "is still a legacy that we're dealing with." What he said is needed now is "a regime change in the conduct of policy," which he said includes a new inflation framework, new tools and a new approach to communicating its messages.
It was just the opening salvo of a sustained critique that ran through the hearing. Warsh described the institution as one that has "lost its way," that "wandered outside of its remit" and that is "in the business of politics" because of its own choices. He mocked "FedNow," a real-time payments network the central bank launched several years ago, by calling it "Fed Yesterday."
He was no gentler on the culture. Warsh said he preferred "messier meetings" where "people don't show up with rehearsed scripts," a critique aimed squarely at how the Federal Open Market Committee now operates. He complained that "too many Fed officials past and present opine in advance about where they think interest rates should be," a shot at the forward-guidance practice that has defined Fed communication for more than a decade.
He turned questions about how he would deal with the kinds of pressure Fed Chair Jerome Powell has faced from Trump back onto the central bank, which the nominee said hadn't earned its independence over the past five years.
"It's earned by delivering on the promises, the commitments that the Fed has made. And as the Fed hasn't delivered on those promises, we shouldn't be surprised that we hear politics that are entering the room, " he said. While the message played well with some Republicans who have been publicly unhappy with Powell, it could make for a frosty reception from some of his colleagues, who generally think highly of Powell's leadership, if and when Warsh is confirmed.
Warsh deflects Trump's public attacks on the Fed
Democrats tried to pry Warsh off his talking point that politicians' statements about rates don't threaten Fed independence. They pointed him to Trump's actions , which include the criminal probe of Powell's oversight of the Fed's building renovations and the attempted firing of governor Lisa Cook, both of which the Fed is fighting in court. Warsh demurred.
Sen. Jack Reed (D., R.I.) delivered an early rebuke. He interrupted Warsh after the Fed nominee leaned again on his standard deflection that all "presidents want lower rates" and that Trump just says it more openly.
"You're the leader," Reed said. "You establish the moral and ethical standards and economic principles of the Fed. And you just pass it off to, 'Well, it's not my job. It's everybody's job.' That means it's nobody's job."
Trump wants lower rates. Warsh says he never agreed to them.
Warsh repeatedly denied to senators of both parties that Trump had sought any commitment on rates. "The president never asked me to predetermine, commit, fix, decide on any interest rate decision in any of our discussions, nor would I ever agree to do so," he told Sen. John Kennedy (R., La.).
Pressed again, Warsh went further: "The president never once asked me to commit to any particular interest rate decision, period, and nor would I ever agree to do so if he had, but he never did."
When Sen. Angela Alsobrooks (D., Md.) pressed him on whether his denial covered implicit suggestions as well as explicit demands, Warsh said, "The president never generally or specifically instructed me -- suggested I should commit to any interest rate path whatsoever."
Warsh acknowledged that Trump has been public about his preference for lower rates, and he argued, as he did repeatedly through the day, that every modern president has wanted lower rates.
Republican senator warns Warsh to 'be careful' on AI hype
Most Republicans used their questions to help Warsh unfurl his agenda. One notable exception was Kennedy, who instead delivered a sharp warning on an argument that had been the centerpiece of Warsh's public case for rate cuts last fall.
Warsh has suggested that AI-driven productivity gains will hold down prices for goods and services and give the Fed room to ease. Kennedy was skeptical.
"Here's my worry," Kennedy said, "that a lot of this stuff about artificial intelligence making us more productive is a bunch of hype by people who want to sell stock and an IPO. I'd be careful there."
The warning came after Kennedy walked Warsh through a compressed version of his own argument: that AI has made labor so productive that companies don't have to raise prices. "Do you really believe that right now?" Kennedy asked.
Warsh quibbled with the framing and retreated to a milder version of his earlier argument, describing the current moment as "the most disruptive moment in modern economic history."
Democratic senator digs in to Warsh's comments on subprime mortgages
Sen. Catherine Cortez Masto (D., Nev.) pressed Warsh on his record during the 2008-09 financial crisis during the nominee's first stint on the Fed board between 2006 and 2011.
She read back a statement he made in 2007, as riskier mortgages began to default at much higher rates: "Subprime mortgages have gotten a bad name in this environment, and in some cases... that's not just." She paired it with his claim at the time that he didn't see any immediate systemic risk among big banks.
It was a pointed line of questioning because Warsh had spent the hearing trashing the Fed's recent record, and now the same scrutiny was being turned on his own. "How can we trust that your economic theory, when you were wrong then, is going to be the accurate theory we need now?" asked the senator.
Warsh defended his record by pointing to how he had called for stronger oversight of mortgage-finance giants Fannie Mae and Freddie Mac. He didn't defend his 2007 read on subprime and instead broadened the frame. "Subprime assets then were indicative of prices of almost every financial asset that were mispriced," he said.
Tillis: 'Let's get rid of this investigation'
Warsh's confirmation isn't a matter of whether he has the votes. It is about who blinks first on the criminal probe of the Fed's construction project: the president or Sen. Thom Tillis (R., N.C.).
Tillis has said he won't support any Fed nominee until the Justice Department drops its investigation into Jerome Powell. On Tuesday, he used his time not to question Warsh, but to work through a slide deck arguing that the overruns were largely legitimate: asbestos remediation, pylons required because the site had been used as a landfill, a 69% increase in the cost of inputs since the original estimate.
His frustration wasn't with Warsh. "You have extraordinary credentials. They're impeccable," Tillis told him. "Let's get rid of this investigation, so I can support your confirmation."
It isn't clear how this ends. Powell's term as chair expires May 15. During a call-in interview on CNBC before Warsh's hearing, one of the hosts repeatedly offered Trump an off-ramp on the Powell probe, suggesting Trump let Congress handle oversight of the renovation, end the investigation and clear the path for Warsh. Trump declined every opening. "We have to find out" where the money went, he said, and at one point suggested, without evidence, that Powell was stealing.
After the hearing, Senate Majority Leader John Thune (R., S.D.) publicly tied Warsh's path to the same knot. "The sooner the administration can wrap up this investigation and get ready to move forward with the new Fed chairman, the better off everyone can be," he said.
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