Warsh Hearing Takes Hardline Stance: Will Never Become Trump's "Puppet," Vows to Uphold Fed Independence

Original Title: "Warsh Hearing Emphasizes Fed Independence, Vows He Will Never Be Trump's 'Puppet', Says He Was Never Asked to Promise Rate Cuts"

Original Author: Li Dan

Original Source: Wall Street News

On Tuesday, February 21st, Eastern Time, the U.S. Senate Banking Committee held a hearing on the nomination for Federal Reserve Chair. Facing questioning from senators of both parties, nominee Warsh emphasized maintaining the independence of monetary policy, stated his intention to implement multi-faceted reforms at the Fed, and vowed he would never act on the orders of President Donald Trump.

In his prepared opening remarks, Warsh pledged to "ensure the implementation of monetary policy remains strictly independent," while also stating that "the Fed's independence depends primarily on the Fed itself." He argued the Fed should stick to its mandate; extending its reach into fiscal and social policy areas where it lacks statutory authority "poses the greatest risk to its independence."

Warsh said: "The independence of monetary policy is crucial. I believe that when elected officials—whether the President, Senators, or Representatives—express views on interest rates, the operational independence of monetary policy is not particularly threatened."

Believing the Fed should adhere to its functional boundaries, Warsh stated he was not in a position to comment on Trump's case to fire Fed Governor Lisa Cook. Commentary notes the core focus of that case is: to what extent does a President have the authority to exert influence over the independent Federal Reserve.

Journalist Nick Timiraos, known as the "Fed Whisperer," commented that while outlining his proposals to "reform" the Fed during the hearing, Warsh largely stuck to views he has emphasized repeatedly in recent years—namely, replacing the Fed's models for forecasting inflation, reducing the frequency of external communications, and gradually shrinking its massive $6.7 trillion balance sheet over time.

Timiraos believes the key to whether Warsh's nomination gets confirmed lies not in whether he can gather enough supporting votes, but in who will blink first on the criminal investigation into Fed Chair Powell—Trump or Republican Senator Thom Tillis.

Timiraos pointed out several notable aspects from the two-and-a-half-hour hearing:

• Warsh dodged all attempts to get him to distance himself from Trump;
• Warsh pledged to uphold Fed independence but skillfully avoided the toughest tests, such as refusing to take a position on Trump's attempt to fire Governor Cook or the criminal investigation into Powell regarding the Fed headquarters renovation, citing ongoing litigation;
• Warsh's rhetoric on independence is likely to cause discomfort within the Fed, as his main argument is that the Fed's recent difficulties are entirely of its own making.

Timiraos also noted that Warsh did not call for rate cuts, but neither did he undermine the case for them. He argued the Fed should focus on core inflation, citing metrics like the trimmed mean which exclude outliers. These metrics show inflation is actually closer to the Fed's 2% target. Warsh also countered a view held by several current Fed officials that tariffs have driven recent inflation data higher. However, he did not declare victory over inflation, stating: "The trend in inflation is improving, but more work remains to be done."

Warsh Says Trump Never Asked, and He Would Never Agree to Promise Rate Cuts 

During the Q&A session, when Senator John Kennedy asked Warsh if he would be Trump's "puppet," Warsh replied: "Absolutely not." 

Senator Ruben Gallego cited a Wall Street Journal report alleging Trump had pressured Warsh to cut rates after confirmation, suggesting someone was lying—either Trump or Warsh.

Warsh disputed the report, saying its author needed to "find more reliable sources or adhere to stricter journalistic standards." He stated: "I stand by every word I've said. The President never asked me for any such promise, and I would never make one."

Senator Jack Reed asked Warsh if he would yield to Trump's demands for rate cuts, given Trump's statement that he wouldn't pick someone who didn't support cuts. Warsh responded that he had made no promises to Trump.

Senator Elizabeth Warren called Warsh "profoundly unfit" for the Fed Chair role. She repeatedly asked if Trump lost the 2020 election. Warsh refused to answer, saying: "If I am confirmed, we will work to keep politics out of the Federal Reserve."

Warren repeatedly pressed Warsh to disclose more details about his roughly $100 million in assets, asking if they included entities tied to Trump and his family or investments related to the convicted Epstein.

Warsh reiterated he had worked with the Office of Government Ethics (OGE) to begin divesting relevant personal assets. He agreed that upon confirmation he would "sell all my financial assets," but never provided specific details.

Seeks "Systemic Change" at Fed, Needs New Communication Style, Four Meetings a Year Too Few

Warsh previewed that if confirmed, he hopes to implement comprehensive, multi-faceted reforms at the Fed, including "systemic changes to policy implementation" and establishing a new "inflation framework." Warsh believes the Fed needs a new inflation framework but did not reveal what form his envisioned framework would take.

Warsh told Senate Banking Committee Chairman, Republican Senator Tim Scott: "We need a new framework, new tools; and Mr. Chairman, I would add—we need a new way of communicating." 

On communication, Warsh stated he believes Fed officials "over-communicate" on interest rates—specifically through the quarterly economic projections where officials anonymously forecast appropriate interest rates, including the so-called dot plot.

Later, asked how many monetary policy meetings he would hold annually as Fed Chair, Warsh did not directly answer. He said the Federal Reserve Act mandates a minimum of four per year, but that is clearly too few. Warsh stated: "Four [meetings] is clearly insufficient, so holding more than that is appropriate."

Regarding whether post-meeting press conferences would continue, Warsh gave no clear answer, saying "if press conferences are held, I believe listening to journalists' immediate concerns and questions would be an imperative responsibility." But he reiterated his previous criticism that Fed officials speak too much.

AI Could Boost Economic Productivity Without Sparking Inflation, Creating Room for Rate Cuts

Senator Van Hollen expressed concern over Warsh's shifting stance on whether rate cuts are beneficial, saying, "My concern is that your position on interest rates seems to shift with political convenience, not sound economic judgment," and asked Warsh why he leans towards cuts while inflation remains elevated.

Warsh said if the underlying pace of economic growth accelerates—for example, due to artificial intelligence (AI)—inflation might become less concerning, creating room for rate cuts.

Media noted that while Warsh's reply did not directly mention "productivity," that was the core of his argument. However, many economists are skeptical of such AI-driven disinflation arguments, noting AI could actually push inflation higher, at least in the short term.

Warsh elaborated on his thinking about how AI will affect the economy. He noted that massive corporate investment in AI infrastructure could boost demand and indirectly push inflation higher in the short term. On the other hand, in the long run, AI technology itself has the potential to enhance economic productive potential, enabling faster growth without sparking inflation.

Asked about AI, Warsh said: "We are at the most disruptive moment in the history of the modern economy, for the United States and globally."

Senator John Kennedy expressed deep skepticism, stating that promises of massive AI-driven productivity gains seem like "hype" concocted by some to promote upcoming IPOs.

Fed "Bears Responsibility" for America's "K-Shaped Economic" Expansion

During the hearing, Warsh stated the Federal Reserve "bears responsibility" for worsening wealth inequality—the now well-known "K-shaped economy" phenomenon—noting the Fed's massive balance sheet amplifies its economic influence.

Responding to Senator Raphael Warnock's question, Warsh said: "I believe the Fed bears responsibility for the divergence you describe between 'those with financial assets' and 'those without'—after all, the Fed's balance sheet has grown from around $800 billion when I first joined in 2006 to an order of magnitude larger today."

He continued: "If the Fed had maintained a smaller balance sheet size... I believe interest rates could have been lower, inflation could have been better, and the economy could have been stronger."

Warsh declined to specify an appropriate size for the Fed's balance sheet. But he said its size should be reduced, and the Fed should not continue holding long-term Treasury bonds.

In February, Xinhua News Agency cited U.S. media reports stating that wealth inequality in American society continues to worsen, structural fissures are accelerating, and "K-shaped economy" characteristics are becoming more pronounced. Xinhua mentioned data showing that in Q3 2025, the net worth share of the top 1% of the U.S. population rose to nearly 32%, a record high, while the bottom half of the population by income owned only 2.5% of national wealth.

Cryptocurrency Should Be Integrated into the Financial System

Senator Cynthia Lummis asked Warsh if he believes crypto assets should be integrated into the financial system, allowing consumers access to more diverse investment choices and better consumer protections.

Warsh affirmed: "Digital assets are already deeply integrated into and constitute part of the fabric of our financial industry, so my answer is yes."

Warsh also said the Fed has no authority to issue a digital currency, which would be a poor policy choice. The Fed indeed should not adopt a Central Bank Digital Currency (CBDC).

Senator Tillis Insists He Won't Support Nomination Until DOJ Ends Powell Investigation

During the hearing, key Senator Thom Tillis stated he would not question Warsh on his views but would use the opportunity to explain why he is blocking this Fed Chair nomination. Tillis previously pledged to block any Fed nominee until the U.S. Department of Justice drops its criminal investigation into Powell.

The DOJ investigation focuses on the multi-billion-dollar renovation of the Fed's Washington headquarters and Powell's testimony before the Senate Banking Committee last year regarding it. Tillis displayed a series of posters detailing the timeline of the Fed renovation. He noted that while cost overruns were "regrettable," they appeared "compliant and proper."

Tillis told Warsh: "Let's resolve this (Powell) investigation first, so I can then support your nomination."