Senators grill Warsh on Fed independence, assets

Senators grilled Kevin Warsh, President Donald Trump’s nominee to lead the Federal Reserve, over his asset disclosures and independence from the president’s decision-making.

The U.S. Senate Banking, Housing and Urban Affairs committee held a confirmation hearing for Warsh on his plans to reform the nation’s central bank and how he would respond to pressure from Trump to cut interest rates.

Warsh said he valued the independence of the monetary agency and would keep it at the forefront of his ongoing leadership strategy.

"I'm committed to ensuring that the conduct of monetary policy remains strictly independent, equally committed to work with the administration and Congress on non-monetary matters that are part of the Fed's remit," Warsh said.

Bipartisan senators questioned whether Warsh would give in to pressure from the president to cut interest rates. Sen. John Kennedy, R-La., asked Warsh if Trump told him to cut interest rates when offered the position of chairman.

Warsh said the president never asked him to make a particular interest rate decision. However, he admitted his position on cutting interest rates is similar to Trump’s.

“The president never asked me to predetermine, commit, fix, decide on any interest rate decision in any of our discussions,” Warsh said.

Trump and the current chairman of the Federal Reserve, Jerome Powell, have publicly feuded over cutting interest rates. Powell has largely maintained interest rates at typical levels in recent years.

Sen. Elizabeth Warren, D-Mass., grilled Warsh over his relationship with the president. She said Warsh lacked the courage to preserve the independence of the Federal Reserve’s decision-making on monetary policy.

“We need a fed chair who is independent,” Warren said. “If you can’t answer these questions, you don’t have the courage or the independence.”

Warsh outlined several reforms he would implement during his leadership of the Federal Reserve. He called on a comprehensive assessment of public and private data sets to determine economic needs and possible interest rate cuts, including from the Bureau of Labor Statistics.

Warsh said he would lead data analysis at the Fed that did not focus on median outcomes from economic surveys, but encompassed small details in reporting. He called for using artificial intelligence to analyze billions of data entries to find the smallest changes and adjust accordingly.

“What’s the change of that 500,000,001 price because that’s inflation,” Warsh said. “I want to know what inflation is and I think there’s still some work to do.”

Warsh pointed to the Fed’s August 2020 revision to its monetary policy framework, which shifted to flexible average inflation targeting. The policy allowed for more employment during the COVID-19 pandemic, but also allowed inflation to go beyond 2%.

“That was the foundation for the inflation surge that happened in the subsequent years, which we’re still living with,” Warsh said.

He also called for improving the Fed’s communications with the public.

Warsh was also grilled on his asset divestitures. Earlier this month, Warsh submitted a financial document to the U.S. Office of Government Ethics that reported his assets were valued between $131 million and $209 million.

Board members of the Fed are prohibited from holding stock in banks, banking institutions or trusts, according to the Federal Reserve Act.

Warsh said he has entered an agreement with the ethics office to fully divest if he is confirmed for the role.

“Those assets that you represent will be sold if I’m confirmed,” Warsh said. “The large majority of those assets will be divested before I am sworn into office if confirmed.”

Senate Democrats across the committee expressed skepticism of the agreement and criticized Warsh.

“Until you dispose of all the assets you’ve identified to the Office of Government Ethics, you will not be in compliance,” Sen. Jack Reed, D-R.I., said.

Warsh and Senate Republicans said he would have 90 days to fully divest himself of his assets if he were to be confirmed by the full Senate.

“He has an agreement that, if he executes, will be in compliance,” Sen. Thom Tillis, R-N.C., said. “That’s why he is properly before us.”

The Senate is expected to fully confirm Warsh over the next few weeks as the central bank prepares to take on new leadership.