Warsh Hearing Reveals How Tightly Trump Has Tied Himself in a Knot on Fed Control

President Donald Trump’s own words were repeatedly used against him Tuesday during a bumpy confirmation hearing for Trump’s Federal Reserve Chair nominee Kevin Warsh. During a two-and-a-half hour Senate Banking Committee hearing, the risk poised by the president to Federal Reserve independence loomed large as Democratic and Republican senators pressed Warsh on Trump’s own statements about pressuring his next Fed Chair to embrace politically influenced monetary policy.

At stake is the credibility of Warsh and the Federal Reserve at large, the stability of the entire global financial system, and the cost of living for people in the U.S., many of whom will vote in November.

As it stands, Warsh seemingly has no chance of confirmation, as senators of both parties object to a bogus Justice Department investigation into current Fed Chair Jerome Powell and the cost of Federal Reserve building renovations that appears to be ongoing. Republican Sen. Thom Tillis (R-NC) has vowed to oppose the nomination until the investigation ends. Trump has only doubled down on continuing the investigation, which a federal judge repeatedly suggested has no merit. Trump’s words have also tied the president in a knot, as he’s repeatedly and publicly said he expects Warsh to cut rates, and even confirmed he told Warsh this in a meeting. The revelation directly contradicts Warsh’s own statements about Fed independence and his meeting with the president. 

In his opening remarks and throughout the proceedings, Warsh emphasized his belief in Fed independence for monetary policy setting.

Asked directly by Sen. Jack Reed (D-RI) whether he’d commit to being independent from Trump, Warsh said “Yes, senator, I do.” He later, however, seemed to qualify that assertion, raising new questions about exactly what Fed “independence” means to him.

“Independence has to be earned and it’s earned by delivering on the promises, the commitment that the Fed has made,” Warsh said in response to Sen. Mike Rounds (R-SD). Rounds called Federal Reserve independence “critical.”

Warsh’s perspective that the Fed has to earn independence is “strange,” said Jared Bernstein, former chair of the Council of Economic Advisers under Joe Biden and a current senior fellow at the progressive think tank the Center for American Progress.

“Fed independence does not need to be earned,” Bernstein told TPM. “It is a foundational principle of central banks, stemming from the very clear historical record of what happens when that independence is compromised.”

On Tuesday morning, Trump in an interview on CNBC’s Squawkbox said he would be disappointed if his new Fed chair didn’t cut rates “right away.” In December, the president posted on Truth Social that the economy was doing well, and that his new fed chair should lower rates.

“Anybody that disagrees with me will never be the Fed Chairman!” Trump wrote on the post.

Also in December, the Wall Street Journal reported that Trump “pressed Warsh on whether he could trust him to support interest-rate cuts,” and that Trump “confirmed that reporting.”

Warsh on Thursday repeatedly held that Trump had never asked him to cut interest rates, and that Warsh would never agree to those terms.

“Someone here is lying, then,” said Sen. Ruben Gallego (D-AZ), referencing the Journal reporting. “Who’s lying here? Is it you or the president? Because the president confirmed that he did ask you to cut interest rates.”

Warsh has flip-flopped on his policy stance. In the past, he was known for wanting to keep rates high to avoid price inflation. In recent months, he’s pivoted to a stance calling for lower rates. His defenders call the 180 a change of mind. Senators worried it was something more sinister.

“I am concerned that your position on interest rates seems to shift with what’s politically convenient, rather than based on sound economic judgment,” said Sen. Chris Van Hollen (D-MD).

Republican committee members also referenced, more gently, Trump’s overt calls for monetary policy manipulation.

“Can you tell us a little bit,” prodded Sen. Cynthia Lummis (R-WY), “about your conversations with President Trump about interest rates?”

“The problem is that President Trump has said he’s not going to appoint anybody who wouldn’t agree to lower interest rights,” said Sen. John Kennedy (R-LA). “Have you agreed with the president that you’re going to lower interest rates?”

Tillis appeared to try and offer Trump an off-ramp during his comments. With posterboards explaining construction and renovation costs, Tillis used his time to rail against the investigation into Powell and reiterated his belief that the cost of Fed building renovations are justified. But rather than mount an antagonistic offense against Trump, Tillis pinned the unpopular investigation on nameless DOJ officials. Trump in January denied he had knowledge of the Powell investigation beforehand.

“The problem that I have here is that we had some U.S. attorney with a dream or assistant U.S. attorney thinking it would be cute to bring chair Powell under an investigation just a few months before the position was going to be open,” Tillis said. “We have got to end this investigation,” Tillis said later. “Big DOJ didn’t know about it. The president didn’t know about it. Let’s get rid of this investigation so I can support your confirmation.”

Tillis’ characterization, however, contradicts Trump’s own. On the Tuesday morning CNBC interview, the president refused to consider dropping the case.

“We have to find out why a small building costs close to $4 billion,” Trump said.

Warsh said presidents have wanted lower interest rates throughout history. But in attempting to remove sitting Federal Reserve Board Governor Lisa Cook, and investigating and repeatedly threatening to fire Powell, Trump has taken unprecedented measures to achieve his politicized central bank agenda.

“The Trump administration could have taken many off ramps to end what is a ridiculous exercise,” said Sen. Angela Alsobrooks (D-MD) on Tuesday. “Instead, they have doubled down. Do you dispute Chairman Powell’s assertion that the investigations are pretext for policy disagreements?”

Warsh obfuscated. “I’d abide by any judgement of the courts,” he said.

Democrats also raised issue with Warsh’s asset portfolio, which totals more than $100 million, and the potential conflicts of interest that it could raise. Warsh repeated that he’d worked with the Government Ethics Office to devise a plan to divest those assets.

Warsh attempted throughout the hearing to underscore his own policy priorities. He wants to shrink the Fed’s $6 trillion balance sheet, use alternative data sources to measure inflation, and believes artificial intelligence might allow the central bank to cut interest rates without creating price inflation. His beliefs are in line with conservative economic thinkers, Richard Stern, vice president of the economic arm of conservative thinktank Advancing American Freedom, told TPM. The issue Warsh is up against is his own nominator, Trump.

“It wouldn’t be a good look for the president to mire his own nomination in this very, everybody thinks, politicized fight over personal beef with Powell,” said Stern.

Warsh cannot be confirmed without Tillis’ support.