Warsh vows Fed independence; Democrats assert financial conflicts

WASHINGTON — Kevin Warsh, the nominee to be next chairman of the Federal Reserve, promised senators Tuesday that the central bank would maintain its independence from the White House under his leadership and that he would divest assets that raised conflict-of-interest concerns among Democrats.

Warsh tried to reassure lawmakers at the Senate Banking Committee confirmation hearing that he would stay at arm’s length from President Donald Trump.

“I’m honored the president nominated me for the position, and I’ll be an independent actor if confirmed as chairman of the Federal Reserve,” Warsh said in answer to a question from Sen. John Kennedy, R-La.

Kennedy gave Warsh a chance to respond to an assertion by ranking member Elizabeth Warren, D-Mass., that Warsh would be Trump’s “sock puppet.”

Trump tapped Warsh earlier this year to take the Fed helm after Jerome Powell’s term as chair expires on May 15. But since the beginning of his second term, Trump has been pressuring Powell to lower interest rates.

In her opening statement, Warren questioned whether Warsh would make monetary policy decisions without listening to Trump’s whispering in his ear. She also said that with Warsh in place, Trump could use the Fed to enrich himself.

“The Senate should not be aiding and abetting Donald Trump’s illegal takeover of the Fed by installing his chosen sock puppet as chair,” Warren said. “It’s an invitation for corruption and economic catastrophe. We have the power to stop it, and we should be using that power.”

Warsh said in his opening statement that it’s not unusual for a president to encourage the Fed to lower interest rates but the Fed must make up its own mind.

“I do not believe that independence of monetary policy is threatened when elected officials state their views on rates,” Warsh said. “Independence is up to the Fed.”

Sen. Ruben Gallego, D-Ariz., pressed Warsh on whether Trump has asked him to agree to cut interest rates. Gallego cited a Wall Street Journal report that Trump confirmed the request.

“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. “He didn’t ask for it, he didn’t demand it, he didn’t require it, and nor would I ever have done so.”

Potential financial conflicts

Warren also zeroed in on what she said were $100 million in assets that Warsh has not disclosed.

Warren asked Warsh whether any investments in the Juggernaut Fund or the SDFS LLC are in companies affiliated with Trump or his family, facilitate money laundering, are controlled by China, or are financing vehicles set up by the late sex offender and financier Jeffrey Epstein.

Warsh said he has signed an agreement with the Office of Government Ethics to divest those assets if he’s confirmed as Fed chair.

Warren then raised concerns about how Warsh might get rid of the assets.

“I’m sure you understand that the public might question your motives if, for example, billionaire Stanley Druckenmiller, who you honored in your opening statement and who makes a living guessing what the Fed will do next, cuts you a massive check for $100 million as you take the oath of office to become the new Federal Reserve chair,” Warren said.

Druckenmiller is a billionaire investor who has worked with Warsh.

Warsh reiterated that the assets would not follow him to the Fed.

“Senator, as you know, (it) sounds like your fight might not be with me, but the Office of Government Ethics,” Warsh said. “I’ve come to full agreement with them and have agreed to divest all of those assets, especially those you’ve referenced, before I take the oath of office.”

Warsh is a former Fed governor and has worked at Wall Street firm Morgan Stanley. He’s also married to an heir of the Estée Lauder fortune.

Tillis reiterates call for DOJ to drop Powell probe

While Trump pressured Powell to lower interest rates, the Department of Justice opened an investigation into the chair regarding cost overruns on a renovation of the Fed building.

Sen. Thom Tillis, R-N.C., and Powell have called the DOJ probe a pretext for amplifying Trump’s effort to force the Fed’s hand on rates. Tillis said at Tuesday’s hearing there were a number of reasons the costs of the Fed renovation exceeded estimates and that there was no reason for the investigation.

Tillis reiterated that he will not vote to advance Warsh’s nomination as long as the renovation probe continues, even though he sees Warsh as a qualified nominee. That stance could stall Warsh’s nomination in the committee, which has a 13-11 GOP majority.

“Let’s get rid of this investigation so I can support your confirmation,” Tillis said.

A federal judge recently quashed subpoenas of Powell and other Fed officials over the renovation.

Trump doesn’t seem interested in backing down.

“We have to find out, why is a job that should have cost $25 million costing billions and billions of dollars,” Trump said in an interview Tuesday morning on CNBC.

“It’s not finished. In fact, I looked at it the other day. I’m afraid Kevin will have to have an office next to me in the White House because that building’s not going to be done,” Trump said.

Fed staying in lane

Senate Banking Chairman Tim Scott, R-S.C., also raised concerns about Fed independence. But he came at it from a different angle, asserting that the Fed in previous administrations had been sidetracked into policies targeting progressive priorities.

“I think we should spend more time on finance, less time on climate change,” Scott said.

He asked Warsh how the Fed would address “affordability.”

“There’s probably no more pressing question than the cost of living,” Warsh said. “We’re still dealing with the legacy of policy errors in 2021 and 2022. We need fundamental policy reforms to fix it. I think that means a different, new inflation framework. I look forward to working with my colleagues at the Fed, if confirmed, to achieve that.”

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