Original Title: "Warsh Hearing Emphasizes Federal Reserve Independence, Vows Never to Be Trump's 'Puppet', Denies Being Asked to Promise Rate Cuts"
Original Author: Li Dan
Original Source: Wall Street Journal
On Tuesday, January 21st, Eastern Time, the U.S. Senate Banking Committee held a hearing on the nomination for Federal Reserve Chair. Facing intense questioning from senators of both parties, nominee Warsh emphasized maintaining the independence of monetary policy, stating his intention to implement various reforms at the Fed and vowing never to take orders from President Trump.
In his prepared opening statement, Warsh promised to "ensure the implementation of monetary policy remains strictly independent," while also stating, "The Fed's independence depends primarily on the Fed itself." The Fed should stick to its mandate; if it extends its functions into areas of fiscal and social policy where it lacks statutory authority, "its independence faces the greatest risk."
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 suitable to comment on Trump's dismissal of Fed Governor Lisa Cook. Commentators noted that the core focus of this case is: to what extent can the President exert his influence on an independent agency like the Fed.
Journalist Nick Timiraos, known as the "new Fed whisperer," commented that while outlining his proposals to "reform" the Fed during the hearing, Warsh largely stuck to the views he has repeatedly emphasized over the past few years—namely, replacing the models the Fed uses to forecast inflation, reducing the frequency of external communications, and gradually shrinking its massive $6.7 trillion balance sheet over time.
Timiraos believes that whether Warsh's nomination is confirmed depends not on whether he can gather enough supporting votes, but on who will give in first regarding the criminal investigation into Fed Chair Powell—Trump or Republican Senator Thom Tillis.
Timiraos pointed out that during the two-and-a-half-hour hearing, several points were notable:
- Warsh avoided all attempts to make him distance himself from Trump;
- Warsh pledged to uphold the Fed's independence but skillfully sidestepped the toughest tests, such as refusing to take a stance on Trump's attempt to dismiss 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 recent difficulties faced by the Fed are entirely of its own making.
Timiraos also mentioned that Warsh did not call for rate cuts but did not undermine the rationale for supporting them. He argued the Fed should focus on core inflation, citing metrics like the "trimmed mean" which excludes outliers. These indicators show that inflation is actually closer to the Fed's 2% target. Warsh also rebutted the view held by several current Fed officials that tariffs have pushed up recent inflation data. 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 that Trump had pressured Warsh to cut rates after confirmation, suggesting someone was lying—either Trump or Warsh.
Warsh disputed the report, stating its author needed to "find more reliable sources or adhere to stricter journalistic standards." He said: "I stand by every word I said. The President never asked me to make any such promise, and I would never make such a promise."
Senator Jack Reed asked Warsh if he would yield to Trump's demands for rate cuts. Trump had stated he would not pick someone for Fed Chair who did not support rate cuts. Warsh responded that he had made no promises to Trump.
Senator Elizabeth Warren called Warsh "deeply unfit" for the role of Fed Chair. 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 Fed."
Warren repeatedly pressed Warsh to disclose more details about his approximately $100 million in assets, specifically whether they included entities linked to Trump and his family or investments related to the convicted Epstein.
Warsh reiterated that he had worked with the Office of Government Ethics (OGE) to divest relevant personal assets. He had agreed to "sell all my financial assets" upon confirmation but never provided specific details.
Desires "Systemic Change" at the Fed, Needs New Communication Methods, Four Meetings a Year is Too Few
Warsh previewed that if confirmed, he hopes to implement thorough reforms in multiple areas at the Fed, including changes to the "policy implementation system" and establishing a new "inflation framework." Warsh believes the Fed needs a new inflation framework but did not reveal what form his envisioned framework might 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."
Regarding communication, Warsh stated he believed Fed officials engage in "excessive communication" on interest rates—specifically体现在 the quarterly economic projections. In these projections, officials are required to anonymously predict the interest rate levels they deem appropriate, including the so-called dot plot.
Later, asked how many monetary policy meetings he would hold annually if confirmed as Fed Chair, Warsh did not answer directly. He stated that the minimum required by the Federal Reserve Act is four per year, but that is clearly insufficient. Warsh said: "Four [meetings] is clearly not enough, so it is appropriate to hold more than that."
As for whether post-meeting press conferences would continue, Warsh did not give a clear answer, saying "If press conferences are held, I believe listening to the immediate concerns and questions of journalists will be an imperative duty." But he reiterated his previous criticism that Fed officials speak too much.
AI Could Boost Economic Productivity Without Triggering Inflation, Creating Room for Rate Cuts
Senator Van Hollen expressed concern about Warsh's changing stance on whether rate cuts are beneficial, saying, "I'm concerned that your position on interest rates seems to shift with political convenience rather than being based on sound economic judgment," and asked Warsh why he leaned towards rate cuts during a period of persistently high inflation.
Warsh stated that if the underlying pace of economic growth accelerates—for example, due to advancements in artificial intelligence (AI)—then inflation might become less concerning, thereby creating room for rate cuts.
Media pointed out that while Warsh did not directly use the word "productivity" in his response, it was central to his argument. However, many economists are skeptical of arguments that AI will help reduce inflation, noting that, at least in the short term, AI might actually push inflation higher.
Warsh elaborated on his thoughts regarding how AI will impact the economy. He pointed out that, on the one hand, massive corporate investments in AI infrastructure will boost demand in the short term, indirectly pushing inflation higher. On the other hand, in the long run, AI technology itself has the potential to enhance the economy's productive potential, thereby enabling faster growth without triggering inflation.
When asked about AI-related topics, Warsh said: "For the modern economic history of the United States and the world, we are at one of the most disruptive moments."
Senator John Kennedy expressed deep skepticism. He stated that the various promises about AI leading to significant productivity gains seemed like "hype" concocted by some to promote upcoming IPOs.
Fed "Bears Responsibility" for U.S. "K-Shaped Economic" Expansion
During the hearing, Warsh stated that the Fed "bears responsibility" for加剧 wealth inequality—the well-known "K-shaped economy" phenomenon—and pointed out that the Fed's massive balance sheet has amplified its influence on the economy.
Responding to a question from Senator Raphael Warnock, Warsh said: "I believe the Fed bears responsibility for the divergence you described between 'those who own financial assets' and 'those who do not'—after all, the Fed's balance sheet has ballooned from the $800 billion level 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 at the time... 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 stated that the balance sheet should be reduced in size, and the Fed should not continue to hold long-term Treasury securities.
In February, Xinhua News Agency cited U.S. media reports stating that current U.S. social wealth inequality continues to加剧, structural cracks are widening加速, and the characteristics of a "K-shaped economy" are becoming increasingly apparent. Xinhua mentioned that data shows in the third quarter of 2025, the net worth 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 the nation's wealth.
Cryptocurrency Should Be Integrated into the Financial System
Senator Cynthia Lummis asked Warsh if he believed crypto assets should be integrated into the financial system, allowing consumers to enjoy richer investment choices and better consumer protection.
Warsh affirmed this: "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, and that would be a poor policy choice. The Fed indeed should not adopt a central bank digital currency (CBDC).
Senator Tillis Insists He Will Not 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 obstructing this Fed Chair nomination. Tillis had previously promised to obstruct any Fed nominee until the Justice Department drops its criminal investigation into Powell.
The Justice Department's 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 project. He pointed out that while the cost overruns were "regrettable," they seemed "compliant and proper."
Tillis told Warsh: "Let's resolve this (Powell) investigation first, so I can then support your nomination."
