Kevin Warsh, President Donald Trump’s pick to lead the Federal Reserve, was set to appear before the Senate Banking Committee on Tuesday, but his path to confirmation remains in limbo.
Warsh, 56, is not expected to immediately advance through the Senate panel, because one Republican senator, North Carolina’s Thom Tillis, is effectively blocking the nomination until the U.S. attorney in Washington drops a criminal investigation into the central bank.
Warsh is a former Morgan Stanley banker who served as a Fed governor during the 2008 financial crisis, acting as a liaison between the central bank and Wall Street. Trump settled on him in late January after a months-long selection process. He would probably be the wealthiest Fed chair in modern times — financial disclosures show a fortune well in excess of $100 million, including holdings in dozens of cryptocurrency and artificial intelligence ventures.
In prepared remarks, Warsh was expected to tell lawmakers that the Fed’s independence in setting interest rates is “essential” while saying that the president should have more sway over other Fed decisions, such as bank regulation and supervision.
Warsh did not mention the investigation or Trump’s years-long attacks on the Fed in his prepared remarks. But he suggested he would not simply deliver the lower interest rates the president has demanded unless they are warranted by economic conditions.
“Inflation is a choice, and the Fed must take responsibility for it,” he told lawmakers.
Trump said Tuesday to CNBC that he would be disappointed if Warsh is confirmed and does not immediately cut interest rates. He also signaled little interest in having the Justice Department abandon its probe of renovations to the Fed’s headquarters, saying that “we have to find out” about the construction costs tied to the Fed’s $2.5 billion project.
Democrats on the panel were expected to press Warsh on the administration’s attempts to encroach on the Fed’s independence, including the Justice Department’s criminal investigation into Powell and Trump’s effort to remove Fed governor Lisa Cook, whose lawsuit seeking to block her ouster is pending before the Supreme Court. They are also expected to highlight perceived gaps in Warsh’s financial disclosures.
Tillis has vowed to block any Fed nominee from advancing to a full Senate vote until the Justice Department investigation into Powell is closed. The investigation escalated last week, when prosecutors from the U.S. attorney’s office in Washington appeared without warning at the Fed’s headquarters seeking a tour of an active construction site.
The episode, in which the prosecutors were turned away, came after a federal judge characterized that Justice Department investigation as a pretextual effort by the Trump administration to pressure Powell to lower interest rates or resign from the independent central bank.
Powell’s term as chair expires May 15. He has said he would remain as acting chairman if a successor is not confirmed. Trump last week threatened to try to fire him if he does not leave the Fed “on time.”
Warsh has long criticized the central bank for “mission creep” — arguing it has strayed beyond its core mandates of overseeing stable inflation and a healthy labor market — and has called for shrinking its roughly $6.6 trillion bond portfolio, which he has characterized as bloated and distortionary.
That last point could eventually put him at odds with Trump, who has repeatedly called for lower rates to juice the economy. Economists say that aggressively unwinding the Fed’s balance sheet probably would push longer-term rates higher, not lower.
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