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Name one aspect of President Trump's economic agenda with which you disagree.
Well, Senator, the Federal Reserve in recent years has wandered outside of its remit, wandered into other something Donald Trump on confirmed.
Just one.
On Tuesday, Kevin Warrish, President Trump's nominee to be the next chair of the Federal Reserve, spoke publicly for the first time since being tapped for one of the most powerful jobs in the world back in January. He faced questions from Senator Elizabeth Warren and other members of the Senate Banking Committee in a nomination hearing that explored everything from his personal finances to his views on economic policymaking.
It looks different on TV than it does in person.
Bloomberg International Economics and Policy correspondent Mike McKee was in the room. He says one topic loomed largest the Fed's independence from outside political pressure and from the President himself or from his.
Name clear that he does not want an independent FED. In fact, he has said, and I quote, anybody that disagrees with me will never be FED chairman. And he's made clear that you are his sock puppets saying last week that interest rates will drop quote when Kevin gets in.
Yeah, changing a FED chair always leaves open the question of where does the FED go from here? And at a time when we have a lot of fraught economics questions out there, shall we say the war tariffs, the overall impact of the President's economic policies. There's a lot riding on this.
With a Republican controlled Senate, it's not so much a question of if Kevin Warrish will be confirmed as FED chair, but when, and there are still some hurdles in front
of a vote on the Senate floor. Tuesday's hearing was a kind of litmus test for Walsh in the public eye as a Trump nominee, and the committee members wanted to know from the nominee himself, what would a warsh FED look like and would it be able to hold its own as an independent entity as Trump puts pressure on the FED to cut interest rates?
Are you going to be the president's human soccer puppet center? Absolutely not.
I'm David Gera and this is the big take from Bloomberg News Today. On the show, Kevin Walsh on Capitol Hill, what his Senate nomination hearing revealed about his ambitions to change the FED and his willingness to stand up to the president. Give us a little refresher, if few would mike of who Kevin Walsh is. He's somebody who's been kind of in and out of government over the last few decades. What should we know about him?
Well, in and out of government is basically the most important thing, besides the fact that he comes from the financial services industry. Then he went to the White House as a member of the National Economic Council before being nominated to the Federal Reserve by George W. Bush. And he then served until twenty eleven basically as Ben Bernanke's
right hand man during the crisis. Because of his ties to Wall Street, he left and he went to work for stan Druck and Miller at Duquane Capital Management and has been working for him and also teaching at Stanford for the last few years until he was nominated now as chair again. So he has a lot of experience
in the financial world. He also knows a lot of people in the tech world because he went to Stanford and he is friends with a lot of the people that you're talking about every day with Ai and with the Silicon Valley world.
I'm curious sort of what his reputation is more broadly among FED policymakers past and present.
Well, when he was on the FED, he was very much a hawk, and he was the one person who was advocating for higher interest rates at a time when the FED was cutting rates to zero because the economy was falling apart in the Great Financial Crisis, and so he stood out for that. Once Donald Trump came to office in twenty and seventeen and was looking for a
new FED chair, who ultimately was Jay Powell reappointed. Warsh was a candidate, and at that time he started to adopt the feathers of a dove, saying that you needed to maybe stimulate the economy a little bit more. And he became certainly more known for that when COVID hit and the FED was cutting rates, and he was in favor of that. Now it seems he's sort of in
the middle. When you listened to him yesterday at the Senate Banking Committee hearing, he was talking about the fact that he didn't think tariffs were inflationary, which on the one hand makes Donald Trump happy.
Core PCE inflation has been running about three percent, a full point above that FED target.
Correct.
Yes, and so some Federal Reserve officials have said that this excess is due to tariffs. Do you agree with.
That center, I don't if I can make two points, much as we discussed in your office, I think the data that's being used to judge inflation is quite imperfect data.
But on the other hand, it's sort of at odds with the way the Fed's looking at it that they are an inflation danger but a one off, and so the FED can look through inflation and maybe at some point soon get back to cutting rates if they're not inflationary. Yes, Swartz says, then we've got a bigger inflation problem than the FED has been saying.
So a big question at this hearing was can Kevin Warsh be fully independent from the President? And the President kicked off the day right before the hearing, he was on CNBC indicating he would like Kevin Worsh to lower rates when he gets into the job. How did the senators tackle that question? How front of mine was that for them?
It was a front of mine, certainly to all the Democrats, but Senator Kennedy of Louisiana, who is a Republican sort of summed it up in what was clearly a pre planned way to try to get some headlines, asking him if he would be a sock puppet for the president, and of course Warsh said, of course, I will not be a stock puppet. And that's the line that sticks out to everybody. But I think the more important line was when Elizabeth Warren asked him who won the twenty
twenty presidential election? Did Donald Trump lose that election?
Mister Worsh, did Donald Trump lose the twenty twenty election?
We try to keep politics. If I'm confirmed out of the federal.
I'm just 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's not the question I'm asking. I'm asking did Donald Trump lose in twenty twenty?
Man, I'm suggesting you.
And Worsh refused to say. And it does show that there is still a weight, a Trump weight on what Worsh can say or is willing to say. But the takeaway is that and the idea that there was anything corrupt or anything that was wrong with Orsh other than bending to the political wins was about what you got out of that.
Kevin Walsh has been a proponent of fundamentally changing the way the federal serve is structured what it does, but the FED cheer does.
Status quo practices and policies are especially harmful when the world is changing this fast.
What was your sense of how receptive members of the committee are to that reform agenda that Kevin Walsh, yes, talked about during the hearing, but it's talked about over the course of his long career.
Well, I think that it depends on the political party, and there isn't a lot of depth on either side. Walsh has made it clear that over the years that he thinks the FED has straight out of its lane, as he put it, and gotten into fiscal or social areas that don't fall under the Fed's remit, like climate change. What may be more interesting to the people in the markets. And I don't know how much depth. You never know
quite what the senators understand about monetary policy. But the idea that he would maybe want to change the communications strategy and get rid of the dot plot, which he suggested is misleading, and maybe change the Fed's inflation index. Those things could turn out to be the most important things he wants to do, along with shrinking the balance sheet,
and those didn't get as much questioning. The balance sheet didn't get much at all, because perhaps the senators aren't up on that or as interested in the technical details of being on the FED.
If Kevin Warrish were to be confirmed, he would be one of the wealthiest FED chairs in history. He's married to the granddaughter of Esta Lauder. She's a billionaire. He disclosed assets worth more than one hundred million dollars, and this is something that came out the course of the hearing as well. Mike, help me understand what more senators want to know about Warsh's financial size.
This is another line of questioning that Elizabeth Warren really pushed was what have you invested in? His financial disclosure forms probably understate much of his holdings, and they basically just tell you in broad strokes what they've invested in. He said he had an agreement with the Office of Government Ethics to sell off his assets to the extent that he can before he takes office, which would be a herculean task perhaps, but he said he's going to
do that. But he would not disclose what those investments necessarily were, and he said the OGE said, that's fine, you don't have to, and so he's stonewelled on that question. But obviously the undertone of the question is who else might you beholden to or who else might you be trying to help through monetary policy? We should mention as
you did. His wife is an heir to the Stay Latter fortune, and he has promised to recuse himself from anything that would, in theory have an impact on Stay Latter, although it's kind of hard to know how that works, given that even lower interest rates would help any company, including Stay Lauder.
Senator Tom Tillis, a Republican member of the Banking Committee, has threatened not to vote for Kevin Warsh if the Trump administration doesn't drop its investigation into current church Jerome Powell over renovations to the Federal Reserves headquarters in Washington. Tilli said he had just one actual objection to Warsh himself.
Let's get rid of this investigation so I can support your confirmation. Mister Walsh. The only thing I've found the least bit odd about you is you've never watched an episode of.
Seinfeld Seinfeld acide. Is Tillis's stance here a threat to Warsh his confirmation.
It's a continued threat to the when part of his confirmation. It's not a threat to the will he be confirmed. He has the votes. Republicans are solidly on his side. But he used his entire time to rail against the investigation that the administration is conducting into J. Powell and the FED over the building renovations. And he's very dug in on the idea that unless that is dropped, he's not going to vote for Kevin Walsh. They're about nine days left, nine legislative days left to vote him out
of committee and then on the floor confirm him. So there's a growing chance that he won't be confirmed because of Senator Tillis's opposition in time to take over right when J. Powell's term is up, which is on May fifteenth.
So what would happen if Warsh is not confirmed in time? And what signals his President Trump send about what he wants his FED cheer nominee to do. That's next. Kevin Walsh would face a Republican controlled Senate if his nomination moves from committee to a floor vote. But there's an ongoing stalemate. GOP Senator Tom Tillis of North Carolina says he'd refuse to vote for Walsh or any FED nominee until the Trump administration drops a Justice Department investigation into
renovations of the Fed's headquarters in Washington. Tillis holds a designing vote on the Senate Banking Committee and said he would be prepared to support Warsh if the probe is dropped. I asked Bloomberg's Mike McKee about how that could play out.
Well, it's not clear that it would go forward once Worsh is confirmed, because that assumes that Senator Tillis is happy with the idea of the investigation being dropped. And Jay Powell says he's not going to leave the FED unless the investigation is dropped with prejudice, which is the legal term for you can't file it again. And so I'm not sure that Worsh will really inherit this issue.
He'll inherit the buildings. But you have to realize the President is vastly exaggerating the over cost overruns of this, saying four billion dollars are over The cost overrun is about six hundred million at this point, which for Washington, for buildings these days and given the age of those buildings, is not completely out of line. But there isn't a
whole lot of evidence that there is anything there. So the first question is why doesn't the President just called Janine Piro, the district attorney, the US attorney in Washington, and say drop the case. I want Kevin Warsh in there. And the other is a possible compromise where maybe the Senate Banking Committee conducts its own investigation that's been floated by some Senator Tillis said yesterday, maybe that's an idea.
But the President seems dug in on this, which is confuses everybody because it doesn't get him what he wants, which is j. Powell out of the chairs job.
Mike, You've been following over the last few years, the President's antipathy toward the current chair of the Federal Reserve and the attacks that he's made on the Fed's independence, and I'm curious if I could ask you maybe to step back and explain to what the actual effect of that has been on the institution. How is the President openly seeking to oust the head of the Federal Reserve affected the willingness of say, other governors other policymakers to break with the president.
Well, you have to take Governor Stephen Myron out of him, because he was appointed by the president basically to uphold the president's views. I've talked to Steven Myron a lot, and I think he really believes those views, So it's not that he's going against his own beliefs. I think the rest of the FED has not been affected at all in terms of doing their job. But when you talk to people of the FED, they're certainly weary of it.
They're tired of being the punching bag. Kevin Warsh was talking about how the FED talks too much and is out there too much, and too many people rely on it and it's become this all purpose safety valve for the economy. Well, they can't get away from that because they keep getting pushed into the spotlight by things the President says. It certainly hasn't affected Jay Powell other than
the weight of being a punching bag all the time. Now, the question is Kevin worsh is going to get that if he doesn't do what the President wants, And how would that affect Walsh. I suspect he'll get a little bit of a pass from the President, but he's not gonna be happy if he doesn't get lower interest rates no matter who the chair is.
Mike, I want to turn nowt to what's next for the outgoing FED chair For Jerome Powell, his term is chair scheduled to end on May the fifteenth. He said he'll stay in the job if Kevin Walsh isn't confirmed by then. He could stay on the board as a FED governor till January of twenty twenty eight. Were he to do that, what kind of influence would he have at the FED as a governor. Has he given any indications how he would operate from that position.
He hasn't. It's only been recently that he's talked about staying on. It was at the last press conference when he said he would remain as the chair pro tem until Warsh were confirmed and that he would not even consider leaving the board until the investigation is dropped. It's been traditioned that FED chairs, even if their term as governors up, resign when a new chairman comes in. But if he wants to stay on, it would be an interesting situation because the FED as it's now constituted is
basically a Powell Fed. People who've been working with him for a very long time and they all respect him, and they all think that what he says and his ability to get consensus is very strong. So Wall Street will be saying, well, who's really running the FED? If that's the case. Powell says he will make his decision based on what's best for the Institution and the United
States rather than for himself. So if he thinks that Kevin worsh or the President was trying to assert undo pressure on the FED, maybe he might stay even if the investigation is dropped. So we're not really clear on what's going to happen with Powell.
The President has once again raised the specter of trying to fire J. Powell. IFEE were to stick around past that May fifteenth deadline, You're not a lawyer. I'm not a lawyer. But what legal grounds does he have to do that? How hard fought would that be?
I didn't even stay at a holiday and express last night, so I have no legal qualifications. It would be very hard though, because the Federal Reserve Act says you could only fire our governor for cause. Now the possible cause is this investigation. But remember there's no charges here. There's only a cost overrun and some thoughts by the president, some innuendo that maybe Powell profited by this. So unless there's something like that, it's going to be harder to do.
Now we're all waiting on the Lisa Cook case, and we're all waiting to see if she is indeed allowed to stay on the FED. If the Supreme Court says that she can, that undercuts the president's ability to fire somebody based on innu window because there's no charge against her either. So it's going to be very hard for the president to do that. He's got a better chance of maybe making nice to j. Powell and getting him to resign than he would with firing him or attempting to do so.
This is the Big Take from Bloomberg News. I'm David Gerra. To get more from the Big Take and unlimited access to all of Bloomberg dot com, subscribe today at the Bloomberg dot Com slash podcast offer. Thanks for listening. We'll be back tomorrow.