- Senators from both parties pressed Kevin Warsh on his commitment to the Fed’s independence at a hearing on Tuesday.
- Trump has led an unprecedented effort to influence Federal Reserve policy.
- "He's made clear that you are his sock puppet," Senator Elizabeth Warren told the nominee during a contentious exchange.
Kevin Warsh, President Donald Trump’s nominee to lead the Federal Reserve, insisted he was no “sock puppet” amid a grilling from senators on Tuesday.
“Monetary policy makers must act in the nation's interest,” Warsh said at a confirmation hearing before the Senate Banking Committee. “I'm committed to ensuring that the conduct of monetary policy remains strictly independent.”
Trump has led an unprecedented effort to influence Federal Reserve policy, repeatedly calling on its board of governors to lower interest rates and berating the outgoing chair, Jerome Powell. Attorneys at the Department of Justice have even opened a criminal investigation into Powell over false statements he allegedly made about cost overruns at the Fed’s Washington, DC headquarters.
Powell has said the probe is politically motivated, an attempt to frighten him into backing lower interest rates. Trump has said he did not order prosecutors to open the investigation.
Still, the row has cast a pall over Warsh’s nomination.
“[Trump] does not want an independent Fed, and in fact he has said, and I quote, ‘anybody that disagrees with me will never be Fed chairman,’” Senator Elizabeth Warren, the top Democrat on the Banking Committee, said Tuesday.
“And he's made clear that you are his sock puppet, saying last week that interest rates will drop ‘When Kevin gets in.’”
Trump’s crusade to oust Powell has even sparked a rare Republican defection.
Senator Thom Tillis, a Republican from North Carolina, has said he would not support Warsh’s nomination until prosecutors drop the Powell investigation. He doubled down on Tuesday.
“You have extraordinary credentials. They're impeccable,” Tillis told Warsh. “Let's get rid of this investigation so I can support your confirmation.”
Presidential pressure
Senators from both parties pressed Warsh on his commitment to the Fed’s independence.
Their questions weren’t just motivated by Trump’s desire for a more pliable Fed chair, but by Warsh’s own statements over the past year calling for lower interest rates. Some senators said they wanted to know whether Trump had influenced Warsh’s stated opinion on the matter.
“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,” Warsh said.
He also reiterated his desire to begin a “policy regime change much more focused on interest rates” than on quantitative easing.
Since the Great Recession, the Fed has purchased trillions of dollars of US Treasury bills, flooding the economy with cash. That policy, known as quantitative easing, stimulated the economy, but it has also fuelled inflation, according to its critics.
Warsh has said he wants to dramatically reduce the Fed’s balance sheet, but assured senators that any reduction would be done carefully.
“That kind of regime change would have to be deliberate, well orchestrated, well choreographed, and well described, so that unnecessary upset are not done to financial markets,” he said.
Crypto investments
Warsh’s financial disclosures show the nominee has an investment portfolio worth more than $130 million. That portfolio features over two dozen investments in crypto ventures, including DeFi lender Compound, derivatives trading platforms dYdX and Lighter, and four blockchains: Solana, Optimism, Blast, and Zero Gravity.
But it also includes investments in funds that invest in other businesses. During the hearing, Warren asked whether those funds have stakes in companies “affiliated with President Trump or his family, companies that have facilitated money laundering, Chinese-controlled companies, or financing vehicles established by Jeffrey Epstein.”
Warsh said only that he had struck a deal with the Office of Government Ethics and would divest from all his investments before taking office.
CBDCs
In less contentious exchanges, Warsh was also asked to share his opinion on several topics, including crypto and artificial intelligence.
Outgoing Senator Cynthia Lummis, a Republican from Wyoming and one of the crypto industry’s top champions in Congress, asked whether crypto “should be incorporated into our financial industry.”
“Digital assets already part of the fabric of our financial services industry in the United States, yes,” he replied.
Warsh also reaffirmed his opposition to central bank digital currencies. The nominee said he would not consider issuing a central bank digital currency so long as the decision was “within the power of the Chairman of the Federal Reserve.”
Warsh is a lecturer at the Stanford Graduate School of Business. He served as a member of the Federal Reserve Board of Governors from 2006 to 2011, and his nomination was viewed positively by many in the crypto industry.
Businessman and Bitcoin evangelist Michael Saylor, for example, predicted Warsh would be “the first pro-Bitcoin chairman of the Federal Reserve” if confirmed.
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.
