Will Warsh’s confirmation hearing come back to bite him?

Will Warsh’s confirmation hearing come back to bite him?

Kevin Warsh was confirmed by the Senate to lead the Fed in an historic vote of 54-45. No Fed chair has ever been confirmed by such a narrow margin. John Fetterman was the only democrat to vote for confirmation. Prior to Warsh here are the votes for the past four Fed chairs: Bernanke 70-30, Yellen 56-26, Powell 80-19. Yellen also has a place in Fed history as the first Fed chair to receive less than 60 votes. In fact, prior to Yellen, Fed chairs needed 60 votes for confirmation.

Virtually every observer would say that Warsh’s vote was a reflection of the animus that the democrats hold for the president rather than an indication that they think about the qualifications of Warsh. However, Warsh did not make any attempt to ingratiate himself with. The democrats. He knew that he was going to be confirmed. He also knew that the democrats hated the president. Warren said “Trump has made clear that he wants to do a full takeover of the Fed” and that “if the Republicans won’t stand up against that takeover, the Democrats should not help them.”

But Warsh did not want to make any statement that would turn our mercurial president against him before he could even get started. In doing so he did not make any friends across the aisle and may need to patch up those bruised feelings once in office. He did not make any friends among the dems with his responses to their questions especially those from Elizabeth Warren and Raphael Warnock. The right wing press chortled at Warren’s frustrations over Warsh’s answers.

Here is some of the exchange: 

Warren: The Fed has been plagued by deeply disturbing ethics scandals in recent years involving at least six Fed officials. So it’s critical that the next Chair have no financial conflicts—none. You have more than $100 million dollars in investments that you have refused to disclose to ethics officials and to the public. So let me ask: do the Juggernaut Fund or THSDFS LLC invest in any companies affiliated with President Trump or his family, companies that have facilitated money laundering, Chinese-controlled companies, or financing vehicles established by Jeffrey Epstein?

Warsh: Senator Warren, thank you. Let me first share a point of agreement with you. The Fed has two tools. One is its monetary policy and the second is its credibility. And the scandals that you talk about, the ethics problems you talk about, run to the core of the credibility that has hurt the Fed.

Warren: Mr. Warsh I appreciate that but- Would you answer my question please? I asked, You have 100 million dollars in undisclosed assets. What I’m asking is, are any of those with this outfit that invests in companies affiliated with President Trump and the family, companies that facilitated money laundering, Chinese controlled companies, or financing vehicles set up by Jeffrey Epstein? It’s a yes or no question.

Warsh refused to answer.

Warren: Mr. Warsh, did Donald Trump lose the 2020 election?

Warsh: We try to keep politics, if I’m confirmed, out of the Federal Reserve.

Warren: So let me ask you another question. In our meeting, you said you would be independent because you’re quote a, “tough guy”, those were your words, “tough guy” and will be able to stand up to President Trump. So let’s try it again: Name one aspect of President Trump’s economic agenda with which you disagree.

Warsh: Well Senator, the Federal Reserve in recent years has wandered outside of its realm, wandered into other areas. That’s not something I’m prepared to do. If I’m confirmed, the Federal Reserve should stay in its lane.

Warren: I’m asking for something you disagree with Donald Trump on. Just one economic- just one economic- just one. Just one little place where you disagree with Donald Trump.

Warsh: Well I do have a disagreement actually, Senator, with the President. I think, even this morning, he said that he thought I was at a central casting. I think central casting, I’d look older, grayer, and maybe show up here with a cigar of sorts.

Warren: Quite adorable. But you know, we need a Fed Chair who is independent. That’s the only way that we preserve the independence of the Federal Reserve.

Warren also called Warsh a “sock puppet” for Trump – which of course Warsh denied.

The right wing media loved the exchange, however the democrats and some independent observers did not calling Warsh’s responses “jokey” and “disrespectful.” Yes, I know that it is difficult oftentimes to be respectful to Elizabeth Warren who is so often disrespectful herself. But it is not wise to alienate all the democrats. See the exchange with Georgia’s Raphael Warnock.

Warnock: If Professor Warsh were to assign a letter grade to the American economy today for the average working family, what grade would you assign?”

Warsh: “In modern academic institutions they give everyone A’s. If I give a student anything but an A, I would have been summoned to the dean’s office.”

The audience in the hearing room laughed but Warnock was not amused saying “Consumer confidence is at a record low. That’s Americans’ grade on the economy.”

When Warnock followed up with written questions about what Warsh would do if the president tried to fire him, Warsh simply refused to answer. Warnock was also upset that Warsh did not respond to requests for comment that were placed through the Hoover Institution, where the former Fed governor is a distinguished visiting fellow in economics. Warnock was not pleased. He said “He’s now under the oversight of my committee. He needs to get used to answering my questions.” Warnock is the ranking member of the Fed oversight sub-panel and has every political incentive to make Fed oversight a visible part of his portfolio.

One veteran observer said “His jokey replies to Warren and Warnock at the hearing were a disrespect I have never seen a Fed Chair show in testimony. I’ve watched a lot of hearings and testimony that Fed chairs have given—ones where they’re getting some very tough lines of questioning. They show a lot of respect.”

This is because ultimately, the Fed is the creature of the congress. Every Fed chair pays homage to the congress – both sides of the aisle. Jay Powell was especially respectful to all of congress during Trump’s first term which paid dividends during his second. Despite all of Trump’s vindictive badgering, the republicans and democrats in the congress never turned on Powell. Warsh did not need democrats’ support for confirmation but he will need them especially if the dems return to power after the midterms. Armed with subpoena power, the democrats will not be the loyal opposition. Far from it. One of the first things Warsh must do is to go to Capitol Hill and mend fences with the democrats. He may not need them now but he will later. Bet on it.