Trump’s Fed chair pick promises reforms in testy confirmation hearing

Twenty years ago, Kevin Warsh flew through his Senate confirmation hearing, earning unanimous support on his way to becoming the youngest ever governor of the U.S. Federal Reserve.

But on Tuesday before the U.S. Senate’s Committee on Banking, Housing and Urban Affairs, President Donald Trump’s pick to replace outgoing Fed chairman Jerome Powell, himself a Trump nominee from the president’s first term, ran into a buzzsaw of criticism and challenges from Democrats even as most Republicans pledged their support and praised Warsh’s record.

Warsh, who earned degrees at both Stanford and Harvard, is a lawyer and financier who built a reputation of being “hawkish” on interest rate cuts while serving as a Fed governor from 2006-2011. He has since evolved his stance, recently sharing his views on the potential for advances in artificial intelligence tools for increasing overall productivity across the country, boosting the economy and creating space for interest rate reductions by the U.S. central bank.

Warsh faced questions about the direction of Fed policy, the relative balance of the central bank’s dual mandate of maximum employment and price stability as well as inquiries about his $100 million in personal wealth and whether or not he could maintain the Fed’s independence in light of Trump’s demands for lower interest rates.

Warren says nominee part of a Fed takeover effort

The committee’s ranking member, Sen. Elizabeth Warren, D-Mass., kicked off the hearing with a blistering attack of both Warsh and Trump, characterizing the nominee as a shill and accusing the president of attempting to take over the Fed to achieve political goals.

“Trump’s economic failures are causing him political problems and he wants the Fed to use monetary policy to artificially juice the economy in the short term and this is his last chance to do that before the November election,” Warren said in her opening statement. “The Senate should not be aiding and abetting Donald Trump’s illegal takeover of the Fed by installing his chosen sock puppet as chair. It’s an invitation for corruption and for economic catastrophe. We have the power to stop it and we should be using that power.”

Trump has pilloried Powell and some of the Fed’s policy decisions and threatened to fire the current chairman on several occasions since he began his second term in January. Trump has repeatedly shared his opinion that he should have a say in the Fed’s interest rate decisions, in spite of the body’s congressionally mandated independence.

“I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether the interest rates should go up or down,” Trump said in an interview with Bloomberg News at the Economic Club of Chicago last October, per NBC News.

Warsh defends commitment to independence

In a statement released to the committee ahead of the hearing, Warsh acknowledged Trump’s vocal stance on interest rate reductions but noted that advocating for rate reductions was a mantra of almost every president and is a factor that stands outside Fed policymaking.

“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,” Warsh wrote in his statement. “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."

Warsh revisited his commitment to policy independence, and discounted any pre-agreement made with Trump, while being questioned Tuesday morning by committee members.

“The president never once asked me to commit to any particular interest rate decision, and nor would I agree to it if he had,” Warsh said. “I will be an independent actor if confirmed as chair of the Federal Reserve.”

Warsh also shared some details of an agreement reached with the Office of Government Ethics to divest $100 million in assets within 90 days of his swearing in as the new chairman, should his nomination find favor with both the committee and a vote of the full Senate. Warsh said that most of that divesting effort would be complete ahead of potential future installment at the Fed.

Qualified GOP support because of Powell investigation

Ahead of the confirmation hearing, Sen. Thom Tillis, R-N.C., had shared his concerns over a federal criminal investigation focused on Powell and stemming from cost overruns on a renovation of the Fed’s Washington, D.C., office complex. Tillis said he would not move Trump’s nominee forward until the investigation was canceled and revisited those sentiments Tuesday, noting he was, however, in full support of Warsh’s nomination.

“We have got to get rid of this investigation,” Tillis said, “so I can support your nomination.”

Warsh pointed to a handful of issues he sees with past Fed policy decisions and promised a number of reforms, including upgrading the monetary body’s technology tools and broadening the scope of data collection, a move he said would help reveal truer readings on economic benchmarks like inflation rates and job creation volumes.

If the panel’s vote should follow a partisan line, Warsh would advance thanks to the makeup of the Senate Banking Committee, which is composed of 13 Republicans and 11 Democrats. The committee has not yet shared when a vote on Warsh’s nomination will be held.