The Senate Banking Committee on Wednesday approved Kevin Warsh’s nomination to become the next Federal Reserve chair, a crucial step toward confirmation after Sen. Thom Tillis (R-North Carolina) dropped his block of the nominee over the weekend.
The banking panel’s voted along party lines, 13-11, to advance Warsh’s nomination to the full Senate, where Republicans hold a majority and his confirmation is all but assured.
Tillis had vowed to block any Fed nominee until the Justice Department closed a criminal investigation into outgoing Chair Jerome H. Powell, relenting only after U.S. Attorney Jeanine Pirro, the top federal prosecutor in D.C., on Friday said she would drop the investigation. Pirro said the Justice Department inquiry could resume if the central bank’s inspector general uncovered evidence of wrongdoing.
Warsh, 56, is a former Fed governor and Morgan Stanley banker who served as a Wall Street liaison during the 2008 financial crisis. If confirmed, he would succeed Powell, whose term as chair expires May 15.
Warsh, who was passed over for the Fed chair job in 2017 when President Donald Trump elevated Powell instead, had long remained in the president’s orbit. At a White House signing ceremony in January 2020, Trump singled him out from the crowd. “I would have been very happy with you,” Trump said. “Why weren’t you more forceful when you wanted that job?” On Wednesday, Warsh was finally on the verge of getting it.
At his confirmation hearing last week, Warsh pledged independence from the White House even as Trump said he would be disappointed if his pick doesn’t immediately cut rates. “The president never asked me to commit to interest rate cuts at any particular meeting over the period of my tenure at the Fed,” Warsh said.
The Senate committee vote comes on the same day that the Fed is expected to leave rates unchanged for its third consecutive meeting, probably Powell’s last as chairman.
Warsh will soon arrive at the Fed vowing an ambitious agenda of “regime change,” including reshaping how the Fed communicates with the public — a priority that could have significant implications for how markets and politicians interact with the central bank. He has suggested he might hold fewer news conferences after regularly scheduled policy meetings and scale back the Fed’s practice of projecting interest rates every quarter, arguing that such forward guidance can leave policymakers anchored to outdated forecasts.
Vincent Reinhart, chief economist at BNY Investments, said he expects Warsh to narrow the Fed’s communications footprint, partly to give politicians fewer opportunities to complain about the central bank. “I think Chair Warsh will be able to explain to his colleagues that where we have discretion on timing, where we have discretion in interpretation, we should choose a path that minimizes the surface area of political confrontation,” Reinhart said.
The upshot of scaled-back communications could mean markets are caught off guard more often, a departure from the Fed’s practice under Powell of telegraphing rate moves ahead of each policy meeting.
“He may well end up with things being a bit more surprising and maybe a bit more near-term volatility,” said Bill English, a Yale professor and former director of the Fed’s division of monetary affairs. “But maybe he’s okay with that.”
Warsh has been broadly critical of the Fed’s recent leadership, arguing that the central bank overreached during and after the coronavirus pandemic and invited the inflation surge that followed. “Inflation comes from bad policy, not bad luck,” he said in “Fed Reckoning: Conversations on America’s Central Bank,” a forthcoming book of interviews about the Fed by New York University’s Simon W. Bowmaker.
Warsh has also argued that the institution strayed beyond its core mandate — weighing in on climate, inequality and racial justice — in ways that made it a political target.
Warsh has also called for shrinking the Fed’s roughly $6.6 trillion bond portfolio, which he has characterized as bloated and distortionary, though he said at his hearing that any shrinking would be “deliberate, well-orchestrated, well-choreographed and well-described” to avoid market tumult.
His confirmation would hand Trump a significant victory in his effort to reshape the central bank’s leadership. Trump elevated Powell in 2017 but quickly soured on him and has spent much of his second term attacking the Fed for keeping rates too high. Warsh would also inherit unfinished business: guiding inflation fully back to the Fed’s 2 percent target, a goal the central bank has missed for about five years.
Democrats on the Banking Committee raised concerns about gaps in Warsh’s financial disclosures and pressed him on his independence from the White House. Sen. Elizabeth Warren (D-Massachusetts) characterized him as a Trump “sock puppet” whose views on monetary policy had shifted to favor lower rates once Trump returned to office.
Warsh disputed the characterization. “Absolutely not,” he said. “I’ll be an independent actor if confirmed.”
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