direction of reinforcing why they should have confidence in their institutions. You have been nominated by the President to be Chairman of the Federal Reserve System. The Federal Reserve plays a powerful role in our economy. Monetary policy choices made at the Federal Reserve can affect the Americans' ability to buy groceries, whether or not they can afford a home, how far their paycheck goes, especially at the end of the month.
In South Carolina, I hear all the time how families are working hard, doing everything right, and still feeling squeezed. Bidenomics made prices go up, and paychecks have not kept pace. Too many parents are stretching every single dollar they have just to cover the basics. Too many workers are wondering when the economy will start to feel stronger at their kitchen table, not just on paper.
Congress, President Trump, and his administration are focusing on fixing the disastrous mistakes of Bidenomics to restore Americans' confidence in our economy. We're helping Americans keep more of their hard-earned money. Compared to the average tax return under President Biden over four years, the average return is up 24% since then. Just in the last year, the average tax return is now around $3,400, an 11% increase, because President Trump and his leadership decided to focus on hardworking Americans who are struggling to make ends meet paycheck to paycheck.
Nearly half the returns filed in 2026 claimed either a deduction for tipped income, overtime earnings, senior citizens, or auto loan interest—four major parts of the tax cut bill that every single person on this dais to the right voted for. Under President Trump's leadership, Americans are keeping more of their hard-earned money, $300 more every month. It is necessary that Congress puts money back in the hands of everyday Americans. And that is why it is important—I want to be clear here—that is why it is important that we confirm Kevin Warsh to be the Federal Reserve Chair.
The Federal Reserve has a clear dual mandate: to promote stable prices and maximum employment. The policies of the Fed therefore directly affect America's cost of living and their income. And when the Fed is successful in fulfilling its dual mandate, affordability improves, with Americans taking home more money and paying less for everyday necessities. Unfortunately, in recent years, the Fed has faced real challenges. There have been questions about its decisions, its focus, and whether it has engaged in issues far outside its jurisdiction.
Under the Biden administration, the Federal Reserve appeared to move with the political winds, raising concerns about politics and weaponizing one of the most powerful weapons we have, the entire Federal Reserve System. For example, under the Biden administration, the Fed pushed climate-focused initiatives, only to reverse that climate agenda as soon as President Trump took office. Actions seem to shape changing political priorities. It can undermine confidence in the independence of this great institution.
An independent Federal Reserve is essential to achieving its mission. Markets depend on it. Families depend on it. And that independence must be protected. The American people expect the Federal Reserve to stay focused on the economy, not politics. Today's hearing is an opportunity to refocus the Federal Reserve on its dual mandate, to increase economic stability and affordability for everyday Americans.
Kevin Warsh is battle-tested and brings the necessary experience of his time as a Federal Reserve Governor during the Great Recession. During his first term as Governor, he helped our economy through the crisis and restored faith in the economy. He has seen the economy in its darkest days and understands how economic decisions affect job growth, our economy, and the opportunities that we have come to love as Americans.
We want every citizen in this country to have a chance to live their version of the American Dream. That means having our private sector economy running as strong as possible, which means your focus has to be on everyday Americans and not politicians, not the political winds, but on everyday Americans who desperately want to restore their confidence in our institutions.
Today, this committee will examine the plans Mr. Warsh has for his return to the Fed, this time as Chair, and how he plans to lead the institution at a critical moment to lower costs and deliver real relief for working families. For folks back home in the great state of South Carolina and across the country, the goal is simple: they want lower costs and more opportunities. The Federal Reserve has a key role in bringing prices down and helping wages go up. Confirming Kevin Warsh will make sure that affordability is at the center of our economic agenda. Senator Warren is now recognized.
Thank you, Mr. Chairman. And may I say that one of our members lost a child yesterday. I know our hearts go out to Mark Warner and his family, and that is true on both sides of the aisle. We may disagree on policies, and we may do so vigorously, but when it comes to the safety and security and the health of our families, I know we are as one, and we are praying.
Ranking Member, I think it would be appropriate for us to take a few seconds of silence on his behalf. 36 years old. One thing you don't want to do as a parent. Thank you.
Thank you. Thank you, Mr. Chairman. Appreciate all you do. So, we should not be having this hearing today. Here is the context: over the past year, President Trump has racked up one economic failure after another, and Americans know that. Consumer sentiment just hit its lowest level on record ever. Inflation is rising, and families are paying more for groceries, more for healthcare, more for utilities, more for housing, all thanks to Trump's chaotic tariffs and one big, beautiful bill. And now his war with Iran is putting American troops in harm's way and further driving up costs of nearly everything here at home.
Second, in your testimony, you said it is perfectly fine for elected officials to state their views on interest rates. But that is not what Donald Trump is doing. The President has repeatedly and illegally attempted to take over the Fed. His bogus attacks on Governor Lisa Cook and Chair Powell were designed to threaten all the members of the Fed to do Trump's bidding and open more slots for Trump flunkies.
Why try to end the independence of the Fed? Because Trump's economic failures are causing him political problems, and he wants the Fed to use monetary policies to artificially juice the economy in the short term. And this is his last chance to do that before the November election. 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. It could mean granting special accounts to his family's crypto companies or bailouts to his friends on Wall Street if they get into trouble. In other words, a Fed under Donald Trump's control creates more opportunities for Trump's corruption.
Third, the nominee before us today, Kevin Warsh, is uniquely ill-suited for the job as Fed Chair. In our meeting last week, we discussed the 2008 financial crash, where 8 million people lost their jobs, 10 million people lost their homes, and millions more lost their life savings. Giant banks, however, got hundreds of billions of dollars in bailouts. Mr. Warsh was a Fed Governor from 2006 to 2011. That is before, during, and after the crash. And he said to me that he has no regrets about anything he did.
So let's take a deeper dive into Mr. Warsh's record. In the years leading up to the 2008 financial crisis, he was an enthusiastic cheerleader for credit default swaps and complex securitizations. He dismissed repeated and increasingly urgent concerns from housing advocates across the country regarding subprime mortgages. He refused to use the Fed's authority to address the risks that were building in the financial system. And when the crisis hit and the economy blew up, Warsh took on the job of Wall Street's personal liaison on the Fed board. He was quick to respond to concerns from Wall Street CEOs, and he worked tirelessly to arrange multibillion-dollar bailouts for them, with nothing for American families. No regrets, he says. No regrets.
After the crash, most people on the Fed saw millions of Americans unemployed, people had lost their homes, and thought now might be a good time to lower rates and make the cost of borrowing cheaper for businesses to avoid more layoffs and make it cheaper for Americans who are worried about paying their mortgages or credit cards. But not Mr. Warsh. Nope. He wanted to keep interest rates high, and he sang the same song for more than a decade, even as the economy struggled.
When the job of Fed Chair became available during Trump's first term as President, Warsh held onto his high interest rate inflation hawk views, and Trump passed him by. Regretful, he soon reversed course and called for the Fed to pause interest rate hikes. Then, once Trump left office, Mr. Warsh flipped again and was even criticizing the Fed for cutting rates in the fall of 2024. But as soon as Donald Trump became President a second time, Warsh reversed himself once more and began shouting from the rooftops about how the Fed should cut interest rates. Evidently, he learned his lesson. This time around, he sucked up to Donald Trump to snag his dream job.
Mr. Chairman, last week every single Democratic member of this committee asked that you postpone this hearing and instead conduct oversight on the President's role in directing bogus criminal probes into Chair Powell and Governor Cook. The Senate should not be aiding and abetting Donald Trump's illegal takeover of the Fed by installing his chosen sock puppet as Chair. It's an invitation for corruption and for economic catastrophe. We have the power to stop it, and we should be using that power. Thank you, Mr. Chairman.
Well, there you have it. I'll just say it is interesting that we are going to hear from Senator McCormick in his introduction of Kevin Warsh, who was last time unanimously confirmed by the United States Senate. Unanimously confirmed by the U.S. Senate. Dave, the floor is yours.
Thank you, Mr. Chairman, Ranking Member Warren, distinguished colleagues. It is a great honor to introduce my friend Kevin Warsh and welcome him and Jane today. Kevin has been a friend for many years.
Winston Churchill observed that for great leaders, there comes "a special moment when they are figuratively tapped on the shoulder and offered the chance to do a very special thing." "What a tragedy," he warned, "if that moment finds them unprepared for that which would have been their finest hour." Colleagues, I'm here today to assure you, as someone who knows Kevin and who knows this institution, that Kevin Warsh could not be more prepared for this, his finest hour. There is no one more fitting, no one more qualified to face this consequential moment as the 17th Chair of the Federal Reserve.
Now, I'm not going to belabor Kevin's academic and professional record. They speak for themselves. Instead, I would like to tell you about a man who we worked with decades ago and who has been someone I have called a friend for almost 30 years. President George W. Bush famously appointed Kevin to the Federal Reserve in 2006 when Kevin was just 35. He was the youngest appointed board member in history.
President Bush saw in Kevin what I believe you will see in him with your questions today: wisdom that belied his age, now deepened by experience; a moral clarity even in the most turbulent of times; a sharp and independent intellect, further strengthened by decades immersed in unforgiving global financial markets; and a deep, honest understanding of how the decisions made in the marble hallways of Washington affect the lives of hardworking Americans.
Now, I, unlike many on this committee, have seen these virtues on display across decades of friendship. I first met Kevin in the late 1990s when he and my younger brother were junior associates on Wall Street. A decade later, we served together in the crucible of the global financial crisis, I as the Under Secretary of the Treasury for International Affairs and Kevin on the Fed board. For nearly two years, we worked hand-in-hand to contain the damage and navigate the country through the crisis. And I know that then-Chairman Ben Bernanke relied heavily on Kevin during those turbulent times, and I did, too. And I've continued to seek his counsel regularly in the years since.
Now, Kevin came to Washington all those years ago as an outsider, an idealistic young man determined to serve his country, one who has succeeded beyond all expectations. And he returns today as the ideal candidate to lead the Fed at this most crucial juncture. If confirmed, Kevin will inherit a Federal Reserve in need of repair and confronting serious uncertainty: an overextended balance sheet, a poor record on inflation, and a weak understanding of the profound opportunities offered in today's economy.
He is uniquely suited to confront these challenges. He brings a reformer's heart. He will shake up a stagnant institution at a time when change is sorely needed. He possesses a deep understanding of markets and is trusted by leaders across the financial industry. But he equally understands the real economy. Born and raised in upstate New York, he knows from personal experience how the actions of the Fed can change the lives of working families. It's no small thing. It's no small thing to know firsthand how an increase in gas prices or mortgage rates or an uptick in unemployment affect everyday Americans.
The Federal Reserve must not be ruled by pointy-headed economists poring over outdated models and reams of market data. It needs a leader. It needs a leader who understands that the Fed's mandate of stable prices and maximum employment serves a higher purpose: the preservation of the American Dream.
Now, colleagues, Kevin Warsh has lived the American Dream. I know in my heart he will always fight to keep the dream alive for all Americans. He is the right man for this pivotal moment, and I urge you—I urge you not to get caught up in the politics of the moment and support his speedy confirmation. Thank you, Mr. Chairman.
Thank you, Senator McCormick. I will now swear in the nominee. Would you please rise, raise your right hand? Do you swear that the testimony you are about to give is the truth, the whole truth, and nothing but the truth, so help you God? Do you agree to appear and testify before any duly constituted committee of the Senate? You may sit down. Your written statement will be made part of the record in its entirety. Please keep your oral comments to five minutes. Mr. Warsh, you are now recognized.
Thank you, Mr. Chairman. I appreciate your consideration today. I've known you for quite a while, and I certainly appreciate the many courtesies you have given me, not just since the President's nomination, but long before. It is an honor to be with you, with Ranking Member Warren, and with the entire committee.
I'm deeply grateful to President Trump for asking me to take on this public trust, because that's what it is: a public trust. The President believes that real economic growth in the U.S. and real take-home pay will accelerate. I share the President's confidence in our country and its people. America's economic growth potential is rising as we sit here today.
I'm also especially happy that my wife, Jane, is here. She has been with me for many of the most important moments in my life. I'm grateful for her love and her personal accomplishments. I reciprocate that with somewhat of my own love, though I'm a little more stoic than she. And about every 20 years, I reintroduce her to this committee. She sat behind me 20 years ago. It was 20 years ago to the date. And so let me offer today what I said then: Jane, happy anniversary.
I'm also thinking of my late mom and dad. They were paying great attention to this hearing 20 years ago. They are no longer with us, but I was always proud of them and the values they taught me, and I hope they would be proud of me today.
We start today with a note of broad agreement, even though we might have heard different narratives at the outset of this hearing. This is a time of great consequence for the nation's economy. As a former Fed Governor and friend or colleague of the last five Fed chiefs, from whom I've learned plenty of lessons, I am particularly alert to the challenges and opportunities confronting the institution that I cherish, the Federal Reserve. To the President, the Congress, the nation, I owe my best judgment and my most faithful efforts in serving a mission that you in Congress assigned to the Federal Reserve, including full employment and stable prices. The American people are counting on the Fed to deliver on its commitments, perhaps now more than ever.
The real highlights of my life are not on my resume, as Senator McCormick said. They include the individuals with whom I worked and from whom I learned. I graduated from high school in upstate New York. I had some exceptional teachers there and some brilliant classmates. I've learned we are lucky in life if we start out with good influences in learning and in character. A public school education gave me both of these, and I'm grateful.
I made my way to Stanford and found myself in the company of some of the most highly accomplished economists and policymakers. George Shultz, former Secretary of State and Treasury, was among the great patriots of the Hoover Institution who I came to know as a teacher, mentor, and friend. He passed away right after COVID at age 100, but I still feel him with me. I could not have imagined a better formative experience than working with and learning from folks like him. I could tell you about all the things I learned, but maybe the most important was to be around people completely devoted to the ideas and ideals of our country.
Silicon Valley in the early 1990s, another fitting backdrop for all the things we confront today. I found myself in the right place at the right time. The U.S. was at the vanguard of a new era of technological leadership, and I had just to look out my door to see it.
In the last 15 years, I've gained a deep experience in macro and in markets working with Stan Druckenmiller. He never held a position in government, but is no less a patriot. He never got a PhD in economics, but I don't know of a finer economic thinker. Without their guidance and the guidance of Condi Rice, my friend and I should say my boss at the Hoover Institution, I doubt I would be sitting before you today as the President's Fed Chair nominee. But I'm certain of one thing: absent their tutelage, absent their example, I would not be as prepared for the urgent mission-critical task at hand.
In between these bookend experiences, I served quite a while ago as a Governor of the Federal Reserve at the birth, at the onset of the financial crisis. As Senator Warren said, our central bank played an indispensable role, and we benefited enormously from the credibility that our predecessors had built up and passed down to us, Governors of the Fed at the time. In these unusual and exigent circumstances, I saw the Fed and its people at their very best. But I also witnessed an institution that was tempted to play a larger role in the economy and society.
So let me be very clear: monetary policy independence is essential. Monetary policymakers must act in the nation's interest, their decisions the product of rigor, deliberation, and unclouded decision-making. And as Senator Warren said, I do not believe that independence of monetary policy is threatened when elected officials state their views on rates. Fed independence is up to the Fed. That has three implications: First, Congress is tasked with the mission to ensure price stability. Inflation is the Fed's choice. Second, Fed independence is at its peak in the conduct of monetary policy. And third, as the Chairman said, the Fed must stay in its lane.
I'm committed to ensuring that the conduct of monetary policy remains strictly independent, equally committed to working with the administration and Congress on nonmonetary matters that are part of the Fed's remit, and I commit myself to accountability. Finally, I will say this, Mr. Chairman: Milton Friedman had a phrase that always stayed with me. He worried about government officials that hung around what he called the tyranny of the status quo. Status quo practices and policies are especially harmful when the world is changing this fast.
If confirmed as Chairman, I will be faithful to the Constitution, the Federal Reserve Act, and to the very best of the Fed's traditions. I believe a reform-oriented Fed can make a real difference to the American people, and if confirmed, I will seek to create an environment in which the best people do their best work. Candor and goodwill will go a long way in pursuing those objectives, and I suspect this hearing, Mr. Chairman, will put us to the test. It is a real privilege to be here.
I ask that we stick to the five-minute opening comments, and I encourage all of us to stick with our five minutes as related to our questions and answers. We have full attendance today. It is important for us to stick as closely to the five minutes as possible. If we go over by much, you will hear me—an indication that you are over.
Kevin Warsh, so many things to ask you about, to be honest with you. I will name a couple of them, and we look forward to hearing more on these topics. I will not have enough time to delve into the most important issues facing this country. I will take those issues—I'm sure my colleagues on either side will have a conversation with you and ask about AI. AI futures are going to have a massive impact on where we go as a nation, a massive impact on your dual mandate as it relates to full employment. Our production may go up while employment stays flat. This is an important question that at some point we should delve into.
I also think that someone should spend some time talking about the balance sheet—nearly a $7 trillion balance sheet at the Federal Reserve. Too much attention has been paid to your balance sheet and not enough has been paid to the nation's balance sheet. It's really important for us to dig into that issue as well. Digital assets—the future of finance in the world seems to have a major component of it being a digital asset. The market structure legislation we don't want your comment on, but the important role of blockchain in the future is an important part of the future of our economy.
I will spend some time talking about affordability and the importance of the independence of the Fed. One of the things I appreciated about your previous comments is the importance that you have placed on the dual mandate: stable prices, which typically comes through the form of interest rate changes, as well as promoting maximum employment. I think those two will become more challenging—the current environment, one obviously, the second one being AI and the future of full employment.
You have criticized the Federal Reserve for getting too big and mismanaging inflation. Some of your predecessors did not, compromising the independence of the Fed. I think we should spend more time on finance and less time on climate change, politics, who is and who is not in charge. I think you would agree on those issues. I will ask you, however, under your leadership, how will you steer the Federal Reserve to address real-life issues of affordability? My first question. And my second question will be how do you make sure the Federal Reserve stays out of the lane of external influences?
Thank you, Mr. Chairman. There is no more pressing question than the cost of living. We know at the Federal Reserve that price stability was an objective you and your colleagues gave to the Fed. When, over the course of the last several years, especially after COVID, prices went up to the tune of 25% to 35% for virtually all deciles of the American people, that is an indication that the Fed missed its mark. And we are still dealing with the legacy of the policy errors in 2021 and 2022. Once you let inflation take hold in the economy, it is more expensive and harder to bring it down. And so the fatal policy error going back four or five years is still the legacy we are dealing with.
We need, in my judgment, fundamental policy reforms to fix it. While it is true that inflation is less problematic and the rate of changing prices is less severe than it was some years ago, hardworking Americans are no doubt feeling it. I think that means a regime change in the conduct of policy. I think it means a different, new inflation framework. I look forward to working with my colleagues at the Fed if confirmed to achieve that.
I think it means, as you suggested, using tools differently. The Fed has an interest rate tool and a balance sheet tool. My view is the interest rate tool gets in the cracks—it's fairer. The balance sheet tool disproportionately helps those with financial assets. The interest rate tool hits the entire economy. So we need a new framework, new tools, and I would also say, Mr. Chairman, new communication.
Part of the reason why, after making a mistake in 2021 and 2022, the mistake was compounded, is the Fed gives its forward guidance. The Fed tells the whole world what the dots are going to be, what the forecasts are going to be. Well, the Fed is human. They hold onto those forecasts longer than they should. I think if the Fed were to wait until they get into a meeting before making decisions, that incremental deliberation can keep the central bank from compounding its error. I think these are big changes that are needed, and if confirmed, I look forward to doing it.
Thank you very much. Ranking Member Warren.
Thank you, Mr. Chairman. The Fed has been plagued by deeply disconcerting ethics scandals in recent years involving at least six Fed officials. It is critical that the next chair has no financial conflicts, none. You have more than $100 million in investments that you have refused to disclose to ethics officials and the public. Let me ask: did the Juggernaut Fund or the KHSDHS LLC invest in any companies affiliated with President Trump and his family, companies that have facilitated money laundering, Chinese-controlled companies, or financing vehicles established by Jeffrey Epstein?
Senator Warren, thank you. Let me first share a point of agreement with you. The Fed has two tools. One is its monetary policy; the second is its credibility. The scandal that you talked about—
Would you answer my question, please? You have $100 million in undisclosed assets. What I am asking is are any of those with this outfit that invests in companies affiliated with President Trump or his family, companies that have facilitated money laundering, Chinese-controlled companies, or financing vehicles set up by Jeffrey Epstein? Yes or no question.
Senator, I have worked tirelessly with the ethics officials—
and have agreed, Senator, to sell all of my—
That is not my question. Mr. Warsh, are you refusing to tell us if you have investments, for example, in vehicles set up to advance Jeffrey Epstein? You just won't tell us?
Senator, what I'm telling you is those assets you represent as Juggernaut will be sold, if I'm confirmed, before I take office and sign the oath of office.
Let me follow up on that. Will you at least disclose how you plan to disclose and divest these secret assets? I'm sure you understand that the public might question your motives if, for example, billionaire Stanley Druckenmiller, who you lauded 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?
Senator, as you know, it sounds like your fight might not be with me, but the Office of Government Ethics. I have fallen into full agreement with them and agreed to divest all those—
I'm asking you a very straightforward question, and that is, will you disclose how you divest those assets, or will you just collect the check for $100 million from someone who told businesses betting on what the Fed will do?
As I said to the ethics officials at the Federal Reserve—
I will take that as a no. So Donald Trump has made clear he does not want an independent Fed. In fact, he has said, "Anybody that disagrees with me will never be Fed chairman." And he has made clear that you are his sock puppet, saying last week that interest rates will drop "when Kevin gets in. Yeah, I think they do." Not when economic conditions change to get lower rates, not when the economy needs it. Nope, he said when my guy Kevin Warsh is in there, we will get interest rates that I, Donald Trump, want. Independence takes courage. Check out your independence and your courage. Mr. Warsh, did Donald Trump lose the 2020 election?
We try to keep politics, if I'm confirmed—
I'm asking you a factual question. I need to know. I need to measure your independence and your courage.
Senator, I believe that this body certified that election many years ago.
That is not the question I'm asking. Did Donald Trump lose in 2020?
I'm suggesting to you that the huge inflation problem—you certified the election—
In our meeting, you said that you would be independent, a tough guy. Those were your words, "tough guy." And you would be able to stand up to President Trump. Name one aspect of President Trump's economic agenda with which you disagree.
Senator, the Federal Reserve has wandered outside its remit. That's not what I'm prepared to do—
One economic—one. Just one little place where you disagree with Donald Trump.
Well, I do have a disagreement, actually, Senator, with the President. Even this morning he said he thought I was out of central casting. I think central casting, I would look older, grayer, show up with a cigar.
Quite adorable. You know, we need a Fed chair who is independent. That is the only way we preserve independence of the Federal Reserve. If you can't answer these questions, you don't have the courage and you don't have the independence.
I agree with you on independence, Senator.
Thank you, Mr. Chairman. Mr. Warsh, first of all, welcome, and I appreciated the opportunity to visit with you personally in the office. I agree with you. I think that independence is critical. I think that is an item that you and I agree on wholeheartedly. I want to take an opportunity to perhaps give you an opportunity to respond. I know that the ranking member had a number of items she expressed concerns with. I would like to give you an opportunity to work this through, and let me ask you a few questions, and I will allow you to take the time to fully answer the questions. As I understand, Mr. Warsh, you worked with the career ethics professionals at the Office of Government Ethics and at the Fed to come to an agreement in terms of your dissolution of some of the assets that you as a businessman have. Is that correct?
Yes, Senator, that is correct. I worked with the Fed ethics officials first, answered all of the questions, then with the career officials, Office of Government Ethics, answered all the questions. And then they drafted, wrote up an ethics agreement, which is part of the public record. But because I agree with Senator Warren on the ethical questions that have been raised over the last several years by several people that were members of the FOMC, so there is no question about my independence, no question about the clarity of my financial record, I agreed to divest virtually all of my financial assets, a large majority of which will be divested before I raise my right hand and am sworn into office if confirmed by this body. So I've gone above and beyond, not for any special reason other than the Fed needs to reestablish its credibility, because economic policy depends on it.
For the record, the agreement you have signed clearly states that you have agreed to divest your assets that are in question within 90 days of confirmation, if you have not already divested it.
Yes, Senator, and in fact, the large majority of those assets will be divested before I'm sworn into office if confirmed.
Thank you. The career ethics professionals were the ones that basically sent your signed paperwork to this committee's chief clerk. I question whether or not they would have done that if they had not come to the ethics agreement with you in the first place, correct?
I presume that's right. We had a very good working relationship, and I'm happy to be sitting after the divestiture in cash or T-bills or whatever is the permitted asset so we can get back to the business of fixing the Fed, reforming an institution that has lost its way a bit, that has missed the mark. As Chairman Scott said at the outset, this inflation risk is still something that is being talked about around kitchen tables and boardrooms. My preferred definition of stable prices is a little different than most academics'. I believe that price stability should be a change in price such that no one is talking about it. That's an old-fashioned definition, but I think it's still valid.
Assuming that we can reform the institution with my colleagues if confirmed, the sooner we can ensure price stability, then we can have a new set of leaders atop the institution with high, credible ethical standards to return the Fed to what it should be. The independence that both Chairman Scott and Senator Warren mentioned is critically important. But independence has to be earned, and it is earned by delivering on the promises, the commitment the Fed has made. And if the Fed hasn't delivered on its promises, we shouldn't be surprised that we hear politics that are entering the room at the Fed. We get the politics out of it so that the Fed can focus on its day job: deliver on full employment and stable prices.
It's true that people want to see stability within the Fed. But is it okay for a Fed Governor or Chairman to change their mind on a particular policy?
It's more than okay, it's essential. Economics is not physics, it's not math. Frankly, most of us ended up in economics—we started, like I did, as a math major. It was too hard, so we end up in economics. In economics, what we need to do is focus on the left of the decimal point, not the right of the decimal point. If mistakes are made, central bankers, economic policymakers need to correct them fast. The real mistake, the mistakes that cause inflation to be persistent, to undermine hardworking Americans' standard of living, is when those mistakes go on.
Mr. Chairman, before we start the next question, I ask that we have entered into the record the government ethics certification which requires that all nominees disclose all of their assets, showing that Mr. Warsh is out of compliance and that he has not met the ethics requirement.
Without objection. I will note, however, that what has been clearly underlined is he will, according to his agreement with OGE, do what many others have done within 90 days: not only be in compliance, but to divest himself of assets in question.
Mr. Chairman, can I ask, I don't think we have had other nominees that are out of compliance and not disclosing—not in this committee.
Here is what we are not going to do.
We are not going to have two chairmen.
We will also not debate putting into the record. Finally, we will have a conversation about America's economy. Frankly, we all deserve the opportunity to ask our questions. We don't get to figure out the answers, but we get to ask our questions. I hope we are able to continue in that direction. As long as we are, we will have a very good hearing. If not, I will find a way to help us expedite getting back on track. Senator Reed.
Thank you very much, Mr. Chairman. Mr. Warsh, until you disclose all the assets you have identified to the Office of Government Ethics, you will not be in compliance, is that correct?
My understanding is that a signed ethics agreement provides duties and responsibilities on me and duties and responsibilities on the government, and that is what the nature of the ethics agreement is.
You have an agreement that within 90 days you will dispose of all your assets, all your assets, is that correct?
Senator, I have an agreement within 90 days so there is no appearance of anything inappropriate. I will divest all of my assets, the majority of which before being sworn in. What I will disclose is what is mine to disclose. I will share all information about assets that I control and I will share, which I did much to the satisfaction of the government ethics office.
Excuse me, what you said is you will take the oath, if confirmed as chairman, with assets that have already been identified as presenting potential conflict of interest. Will you agree to not take the oath until you have fully disposed of all the assets that you identified?
Senator, I will agree to take the oath pursuant to the terms of the ethics agreement that I struck with the Office of Government Ethics. I don't think anyone can do more than that. Other than me, I have agreed to divest more assets; I will have virtually no financial assets.
Divestiture is totally up to you. You can select what assets you're disposing of and what assets you keep, is that correct, and still be sworn in as Chairman?
The divestiture is up to the agreement I struck with the Office of Government Ethics.
Who makes the decision as to what assets are divested?
Both of us. That's why it's an agreement.
Excuse me. I must commend you on the way you have the ability to go around questions and not answer them. It's a good skill. We typically ask questions and expect to get direct, faithful answers. You have not given them to the ranking member and you are not giving them to me. Again, you feel you will be compliant if after 90 days you still have a significant number of assets that have been identified as presenting conflict of interest? Is that your position?
No, Senator. If I were to violate the ethics agreement, I would not be in compliance. If I follow the agreement, I will be.
Well, that's your position. I think others would differ. When you sell all your assets, where are you going to place the proceeds of the sales? I believe that Chairman Powell has placed them in some sort of funds which are very difficult to individual influence. Do you propose to do that?
I propose to put them in permissible assets that are as close to cash or Treasury bills as I can. I have not selected anything, but they will be as plain-vanilla as possible to not have any appearance of influence. Something like cash.
The question of independence is one that I think will dominate these proceedings. This morning President Trump was asked on CNBC, will you be disappointed if your new Fed chair doesn't cut rates right away? And President Trump answered, "I would." It's very hard to separate President Trump's obsession with the rate cuts, his attacks on the Federal Reserve, on Chairman Powell particularly, and your nomination. So this independence thing seems to be—has evaporated quite quickly between President Trump's statements and your positions. Again, you maintain you will be independent of President Trump?
Well, President Trump constantly maintained that nobody is independent of him, that it is his morality that governs the entire United States government, and you will be someone who will carry out his will. Do you suspect he chose you because you indicated to him that you want to cut rates?
Senator, I don't know the reason for the President's choice, but I can tell you what I've been writing about for 15 years and what I said to the President.
"I'll cut rates if you give me the job"?
No, that's not what I said, Senator. The President, much like virtually all presidents I've known or studied, tends to favor cutting rates. The difference is President Trump expresses it quite publicly without surrogates or subterfuge. But presidents want lower rates. Fed independence is up to the Fed. Leadership has to make a decision—
No, you are the leader. You establish the moral and ethical standards and economic principles of the Fed. If you just pass it off to "it's not my job, it's everybody's job," that means it is nobody's job. Thank you.
Before my time starts, can I make a parliamentary inquiry? I want to make sure we get this right. I'm not an attorney, but I think it's important to suggest that according to Mr. Warsh, he has signed an agreement that is in compliance, provided that he execute the agreement. So we should not go into the record before us out of compliance. You stipulated that what Senator Warren said was a first of a kind here. But he is not out of compliance; he has an agreement that if he executes will be in compliance. That is why he is properly before us. I just want to make sure for the record that is clear.
Very clear. Let me reiterate what you just said: Office of Government Ethics has entered into an agreement with Kevin Warsh, and he has up until 90 days after confirmed to divest of his assets.
So to non-attorneys here, I heard someone say he is before us out of compliance, and that is why I checked with the staff to be absolutely certain. He is properly before us. He will be in compliance if they execute the agreement that addresses the concerns presented by some of my colleagues on the other side of the aisle. I want to confirm for the record that that is accurate.
So we're doing this as parliamentary inquiry?
I've made a parliamentary inquiry so I am not burning my time on something that I felt like a cheap shot to say he is out of compliance when he is not.
Then I would like to ask the other question, and that is have we seen this agreement? Do we have any way to verify that in fact these sales will occur if we have no idea what is in them and no one has told? And let's remember the law for a minute: the Fed, unlike other parts of government, does not have a 90-day you can be out of compliance. Fed law is explicit that you cannot own any portion of a financial interest in a bank.
Mr. Chairman, excuse me to interrupt—are we all going to get extra time here?
I would like an extra three minutes, okay?
That was a parliamentary inquiry, so it doesn't count.
Mr. Chair, the reason I mention that is you stipulated—I don't think you meant it this way, but you as the chair said that is the first of a kind, someone being out of compliance. I wanted to make sure it was clear for the record.
Let me stop you here. Again, the career ethics professionals are the ones who did Mr. Warsh's signed paperwork. They would not have done so if they did not come to an ethics agreement. Senator Kennedy does raise a good point. We are going to stick to our timeline. I appreciate you raising the point of how long the inquiry can go on. It does not buy you more time, unless of course we all decide we want more time. I would rule on time.
Thank you, Mr. Chair. Mr. Warsh, congratulations. I think the first hearing was a little less ceremonious. I'm not going to ask you anything. You can take a break and get ready for the bludgeoning. They are going to beat you until you bleed and then they will beat you for bleeding. I will tell you what is keeping me from being in a position to vote for you. We spent time together in my office; you have extraordinary credentials. It is impactful, and the way you are dealing with the ethics issue is strong. The problem I have is where we are right now, and I will start by saying I love your opening statement, I loved your focus on the independence of the Fed. I love the idea of Fed independence with respect to achieving the dual mandate, Fed transparency and so many other things the Fed does and we are frustrated with, supervision being among them, but we should have more insight into. Mr. Chair, I would like to submit for the record two executive orders under President Trump, one in 2020, one in 2025, focusing on trying to preserve the integrity of old buildings.
Thank you, and I will be submitting an analysis, but if we could go to slide two and turn it up bright. Much has been made about the building project that has Chair Powell under investigation. I'm not going to get into the details except to say that I used to work for a firm that did auditing compliance, so I am naturally wired to go back from the ground up and figure out what the deal is. Here is what I know: the Marriner Eccles building has been conflated to make it a $4 billion building. The reality is what we are talking about is the buildings—bring that up. These are the overruns, and these overruns occurred in part because the cost of inputs went up 69% since the original estimate.
Remediation was required. High lines had to be built underneath the building because it turns out they used it as a landfill and they had a water table issue. There were a variety of reasons why this building went over budget, and as a matter of fact, if we put everyone in federal government that had a budget go over, we would have to reserve an area roughly the size of Texas for a penal colony because of the way government projects work. The reality is the overage was about $730 million, a majority of which seems to be legitimate. Next slide. Unfortunate, but legitimate.
What I have a problem with—and we are talking about Fed independence, and I think you are going to be independent. You have to convince 11 other people to vote with you. Most of these folks are 11-1. Whoever thinks the President can appoint someone that can unilaterally control things, you will be unsuccessful. And you have served under some of the best, so I know you will get it right. The problem 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 investigation just a few months before the position was going to be open. This happened this year. Normal course of speed, May 15, the term would have expired, we would be having this hearing, and you would get confirmed.
The sitting Chair, even though he has years left on his term, he would have exited. But instead we have somebody who thinks a building project that went over by about $700 million, with a lot of what seemed to be justifications for it, are holding up this whole process. It sounds to me like someone over at the DOJ didn't even check with the boss. The boss said on the same night that I said I can't go forward until this bogus investigation is done with that he didn't know anything about it. We've got people in DOJ in the D.C. Circuit or the D.C. District doing these investigations. We've got to end this investigation. DOJ didn't know about it, the President didn't know; let's get rid of the investigation so I can support your nomination.
The only thing I have found odd about you is you've never watched an episode of Seinfeld. You spent so much time being a rock-solid economist that you are not even taking time away for a laugh. I look forward to supporting your nomination, and I look forward to this investigation being taken down. If the Chair wants to have all of our subcommittees start looking at capital expenditure projects for the agencies we are overseeing, I think that is a great idea, and I would like to be on the committee specifically drilling down on this analysis. If someone can prove me wrong, I would be happy to make a criminal referral. Seven members on this committee said a crime was not committed, including the Chair. Thank you, Mr. Chair.
Thank you. Senator Van Hollen.
Thank you. Mr. Warsh, good to see you. Reviewing your record, I am concerned that your position on interest rates seems to shift with what is politically convenient, rather than based on sound economic judgment. In the aftermath of the 2008 financial crisis, the worst recession since the Great Depression, with some of the worst unemployment in our lifetimes, you were a hawkish voice, expressing concern that the Fed might wait too long to raise rates. I think you got it wrong then, but now you seem to have swung 180 degrees to the opposite direction to embrace lower rates, a view that conveniently aligns with the President who nominated you. You made this pivot even as today prices are too high. Our economy works for families when prices are affordable and unemployment is low. That is why price stability is an important part of the Fed mandate, right?
That is the job Congress gave to the Fed. Here is how Ben Bernanke described how the Fed uses those tools. He said, and I quote, "Generally, if economic weakness is the primary concern, the Fed has to reduce interest rates, which supports the economy. If the economy is overheating, the Fed can raise interest rates to constrain inflationary pressures." That is a textbook model of the Fed: cutting rates supports the economy but could lead to higher inflation, while raising rates helps to fight inflation, but can limit growth. Do you agree with Chairman Bernanke that that is generally how the Fed can use monetary policy to affect the economy?
I do agree with that proposition generally, but I will note at a moment like this, the supply side of the economy is changing dramatically. So the core of what Chairman Bernanke said is a question about what is the economy's potential, and I think the economy's potential is growing quite quickly, and that makes the decision that you put up to be a difficult one that the Fed will have to dig deep in in evaluating what is the right policy choice.
I'm going to push you on that in a moment, but right now the Fed has set the interest rate at 3.7%. Last December, President Trump told the Wall Street Journal he wanted to cut rates to 1% and maybe lower by the end of this year. To better understand how you think about economics, in the economic model Bernanke laid out, let's say there is an economy with decent growth and no recession. If the central bank were to cut rates from 3.5% to 1% or lower, that would typically push prices up, right?
Unlike many of my colleagues past and present, I don't believe in forward guidance. I don't believe that I should be previewing for you what a future decision might be.
I am not asking you what decision you would make. That's going to be up to you. I'm asking you for the framework in which you think about these things, and it seems a pretty straightforward question about what would happen if we reduced interest rates by the end of this year to 1% or less. Under the Bernanke model, and almost—most economists would say that would drive up prices. That is what I am asking you. Would you agree that it would drive up prices?
The Fed has two important monetary policy tools. One is interest rates and the other is a balance sheet—a balance sheet that we created in the 2008 financial crisis. Those tools should be working in concert, so it is hard for me to isolate one variable when we would have to have a discussion on the other.
Let me just say, this was a pretty clear question about the framework in which these decisions are made. I have heard you talk about how AI may change that calculation. I will just say, and I think you know this, Financial Times pointed out that economists reject Kevin Warsh's claim that the AI boom will enable rate cuts, and I find it implausible to suggest that by the end of this year, AI would produce such increases in productivity that the rate could reduce to below 1% and you can't tell me that that would likely increase prices.
Monetary policy works with variable lags, quite famously. If the Fed were to make a decision today about policy, it is likely to find its way to the real economy six, nine, or 12 months later, so it is difficult to judge policy today for an immediate result. That would be my concern about the framing of the question.
Thank you, Mr. Chairman. In closing, what concerns me is your views have sort of flipped to conform to where the President is, and that is a concern that many of us have.
I want extra time. What is a sock puppet?
I heard the reference from Senator Warren.
I'm not sure I know. It's a thing you stick your hand in.
Like this. What is a human sock puppet? Somebody who will do what someone else tells them to do.
I think that is what the Senator was trying to suggest.
Are you going to be the President's sock puppet?
Are you going to be anyone's sock puppet?
I will be an independent actor if confirmed.
My friend Senator Warren—and she is my friend—suggested that you will use your power—you might use your power to bail out your friends if they get in trouble. Kind of like President Biden did with Silicon Valley Bank and Signature Bank. She didn't say that last part. Are you going to do that?
The ethics folks: they cleared you, but they said you have to sell some assets, is that right?
These assets that you have, you can't just hold a yard sale, can you?
It takes a reasonable period of time.
And you promised to sell?
And if you don't sell them, we will know and the ethics people will know.
Yes, I would be in violation of the agreement if I refused to sell.
But you are going to sell.
Can we agree that politicians have the right to offer you advice about what to do with interest rates?
We can agree, and it is not something I would shy away from. I've heard many senators from this very committee in years past express strong views on interest rates.
But some politicians matter more than others, and generally speaking, presidents matter more than a senator. President Trump has offered his opinion about what you want to do with interest rates, is that right?
He has not made his opinion a secret.
Every president in the past.
They all tend to be in the same direction.
Can we agree that your credibility as Fed Chairman is the most important thing you have?
It's the most important thing to me, to the institution, the most important thing for successful conduct of policy.
The problem is that President Trump said he's not going to appoint anyone who would not agree to lower interest rates. Have you agreed with the President that you are going to lower interest rates?
I'm glad you framed it that way. The President never asked me to predetermine or commit or fix or decide on any interest rate decision in any of our discussions, nor would I agree to do so.
So the President has never sat you down, looked you in the eye and said, "I'm going to appoint you, but you've got to agree to lower interest rates"? That did not happen?
The President never once asked me to commit to any particular interest rate decision, nor would I ever agree to do so if he had. It was an honor that he nominated me. Like everyone else, I've heard his view on interest rates.
sounded very similar to every other president that I have studied.
I've got one more question because I'm about to run out of preliminary inquiry time. I've heard your argument the last few months about artificial intelligence has made us so productive, labor is so productive that companies don't have to raise prices. Therefore inflation isn't a problem. Therefore the rates can be cut. Do you believe that right now?
That is not how I would characterize the story on AI.
But you said what I just said.
I said that this is the most disruptive moment in modern economic history in the U.S. and the world. I've said that artificial intelligence—
Let me stop you. Here is my worry. This stuff about artificial intelligence making us more productive is a bunch of hype by people who want to sell stock in an IPO. I would be careful. Thank you, Mr. Chairman. I will get to my five minutes in a little bit.
