Kevin Warsh, President Trump’s nominee to chair the Federal Reserve, told lawmakers Tuesday that he has never promised the president to cut interest rates if confirmed and that the central bank must be “strictly independent” when setting monetary policy.
Mr. Warsh pledged not to cave to political pressure after Mr. Trump’s browbeating of current Fed Chairman Jerome Powell for not slashing interest rates at a faster pace. Mr. Powell has maintained that interest rates and other decisions should be based on economic data, not coercion from elected officials.
Just hours before Mr. Warsh’s confirmation hearing before the Senate Banking Committee, Mr. Trump told CNBC that he would be disappointed if his choice for Fed chair did not immediately cut interest rates.
“The president never once asked me to commit to any particular interest rate decision, and nor would I agree to it if he had. I will be an independent actor if confirmed as chair of the Federal Reserve,” Mr. Warsh told the committee.
Fed independence has grown more pressing in recent weeks. The Iran war has pushed U.S. energy prices higher, elevating inflation to its fastest pace in almost two years. Inflation remains elevated at 3.3% annually.
When inflation rises, the Fed typically raises rates or keeps them steady to slow the economy. When inflation begins to cool, the Fed typically lowers rates to encourage spending. Interest rates affect mortgages, auto loans and credit card purchases.
The central bank’s federal funds target rate stands at 3.6%, a slight decrease from last year but much higher than the 1% Mr. Trump has demanded.
Democrats say Fed independence is under siege because of Mr. Trump’s repeated calls for lower interest rates and criticism of Mr. Powell, whom he has nicknamed “too late.”
Sen. Elizabeth Warren of Massachusetts, the committee’s top Democrat, said Mr. Warsh will be a “sock puppet” for the president, undermining the Fed’s ability to independently make monetary decisions.
“Having a sock puppet in charge of the Fed would also give the president access to the Fed’s powerful authorities to enrich himself, his family and his Wall Street buddies,” she said. “A Fed under Donald Trump’s control creates more opportunities for Trump’s corruption.”
When asked whether he would be the president’s sock puppet, Mr. Warsh responded, “Absolutely not.” He said he would be an “independent actor” leading the U.S. central bank.
Mr. Warsh is not expected to advance immediately out of the Senate committee because Sen. Thom Tillis, North Carolina Republican, said he plans to block the nomination until the U.S. attorney for the District of Columbia drops a criminal investigation of Mr. Powell tied to the multibillion-dollar renovation of the Fed’s Washington headquarters.
A Republican defection would be enough to derail Mr. Warsh’s nomination. To advance, he must earn a majority of votes on the committee, which comprises 13 Republicans and 11 Democrats.
If Mr. Tillis votes against the nominee, the panel would be evenly split at 12-12, and Mr. Warsh’s nomination would fail.
“If anybody thinks a president can appoint somebody and you unilaterally can control things, you’re going to be an unsuccessful chair, if history is any guide,” Mr. Tillis said during Mr. Warsh’s hearing. “And you’ve served under some of the best, so I know you’re going to do it right.”
The senator added, “Let’s get rid of this investigation so I can support your confirmation.”
Mr. Trump has said he is not interested in having the Justice Department end the investigation into the Fed renovations. He said that finding out about the cost overruns stemming from the $2.5 billion project is important.
Failure to advance out of the committee would complicate what is expected to be a turbulent transition. Mr. Powell’s term as chair ends May 15, but he has offered to remain in the position until a successor is found. He is serving a separate term as a member of the Fed’s Board of Governors that lasts until January 2028.
Fed chairs typically step down entirely from the board at the end of their terms, but Mr. Powell has pledged to remain on the board, even if a new chair is approved, until the investigation is dropped.
Mr. Trump said he would fire Mr. Powell if he tried to remain at the Fed. However, the president’s attempt to remove Fed Governor Lisa Cook has been meandering through the courts for the past year. The Supreme Court heard oral arguments on the issue in January.
During his 2½-hour hearing, Mr. Warsh steered clear of the Powell investigation and Mr. Trump’s attacks on the Fed.
Instead, Mr. Warsh reiterated that he would not lower interest rates solely because the president demanded it.
He emphasized that pressure from lawmakers threatens the Fed’s independence and noted that previous presidents have also called for lower rates.
“I don’t believe the independence of monetary policy is threatened when elected officials state their views on rates,” Mr. Warsh told the committee. “Fed independence is up to the Fed.”
Democrats on the committee pressed Mr. Warsh to disclose the $100 million in assets in private funds listed on his financial disclosure that he has refused to make public, citing confidentiality agreements.
When Ms. Warren asked Mr. Warsh whether the funds had any connection to Mr. Trump, the Trump family business, Chinese-controlled entities or deceased sex offender Jeffrey Epstein, he declined to answer. He said only that he would divest from the funds if confirmed. He said he is working with the Office of Government Ethics to divest the assets.
Mr. Warsh is a former Morgan Stanley banker and is an economist at the Hoover Institution, a public policy think tank at Stanford University. He served as a Fed governor during the 2008 financial crisis, acting as a liaison between the central bank and Wall Street.
Mr. Trump nominated him in late January to be the Fed chairman.
• Jeff Mordock can be reached at jmordock@washingtontimes.com.
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