Senate questions Warsh on $100M-plus holdings and Fed ethics

Kevin Warsh, President Donald Trump’s nominee to serve as the 17th chairman of the Federal Reserve, faced sharp questioning from senators on Tuesday at his confirmation hearing. Warsh asserted that he would not be the president’s “sock puppet” when determining interest rate decisions.

Warsh, a former Fed governor who served during the 2008 financial crisis, faced specific questions from Democrats about his independence from Trump and his undisclosed investments, while Republicans rallied to his defense and urged swift confirmation.

The hearing, which took place before the Senate Banking Committee, lasted over two hours and repeatedly returned to two themes — whether Warsh would resist political pressure from the White House on interest rates, and whether his estimated nine‑figure holdings and opaque investment structures pose conflicts of interest.

Sen. Elizabeth Warren (D-Mass.) accused Warsh of being Trump’s “sock puppet,” citing the president’s repeated public demands for lower interest rates and his comments that rates would fall “when Kevin gets in.”

Democrats repeatedly tried to pin Warsh down on his relationship with Trump and his willingness to defy the president. Warren asked him flatly whether Trump lost the 2020 election. Warsh did not answer directly, saying only that Congress had certified the election and pivoting to concerns about inflation.

When Warren pressed Warsh to name “one aspect” of Trump’s economic agenda he disagrees with, Warsh deflected with a joke about Trump calling him “central casting.” That prompted Warren to say that his evasions of her questions showed he “lacked the courage and independence” the job requires.

Warsh also faced questions about his more than $100 million in investments, including stakes held through vehicles such as The Juggernaut Fund LP and THSDFS LLC. Warren also asked whether any of those vehicles invest in companies tied to Trump or his family, any firms implicated in money laundering, Chinese‑controlled companies or financing vehicles associated with Jeffrey Epstein.

Warsh responded by saying he has reached an agreement with the Office of Government Ethics (OGE) and the Fed’s own ethics officials, and has “agreed to divest virtually all of my financial assets,” with the large majority to be sold before he is sworn in, if confirmed.

Warren also questioned whether Warsh would disclose the buyers of his stakes once he divests, suggesting the public might reasonably worry that allies of Trump could pay top dollar to gain insight into Fed thinking. Warsh again pointed to his OGE agreement and said he would move the proceeds into “plain vanilla” holdings such as cash or Treasury bills.

Investigations into Powell, Cook

Other Democrats questioned whether Warsh’s public views on interest rates have tracked economic conditions or political demands.

Sen. Chris Van Hollen (D‑Md.) noted that in the years after the 2008 crisis, when unemployment remained high, Warsh was among the more hawkish voices at the Fed and warned against keeping rates too low for too long.

More recently, Van Hollen said, Warsh has swung toward supporting lower rates in ways that “conveniently align” with Trump’s calls for aggressive cuts despite still‑elevated consumer prices.

When Van Hollen asked whether a cut from the current policy rate of roughly 3.5% to 1% or less by the end of 2026 would be expected to push prices up, Warsh declined to give a straight answer. He said the effect would depend on how the Fed’s balance sheet was managed at the same time.

Other Democrats zeroed in on the Fed’s ethics record and the Trump administration’s unprecedented interventions at the central bank.

Sens. Jack Reed (D‑R.I.) and Tina Smith (D‑Minn.) raised questions about the ongoing criminal investigation of current Fed Chair Jerome Powell over a multibillion‑dollar headquarters renovation project. Warsh refused to weigh in, noting the matter is before the courts, but pledged in general terms to uphold Fed independence.

Several senators also cited Trump’s failed attempt to fire Fed Governor Lisa Cook over what they described as politically motivated allegations. They pressed Warsh to say whether removing a sitting governor under these circumstances would, as Supreme Court Justice Brett Kavanaugh has warned, “weaken, if not shatter,” the Fed’s independence.

Warsh declined to endorse Kavanaugh’s language, saying only that he would follow the high court’s rulings and the Federal Reserve Act.

Insights from the GOP

Republicans took a sharply different tone. Committee Chair Tim Scott (R‑S.C.) framed the hearing as a chance to “refocus the Federal Reserve on its dual mandate” of stable prices and maximum employment, while blaming what he called the “policy errors” of 2021 and 2022 for cumulative price increases of 25% to 35% since the COVID-19 pandemic.

Scott invited Warsh to outline how he would tackle affordability and keep the Fed “out of the lane of external influences.”

Warsh responded that the central bank needs “fundamental policy reforms,” including a new inflation framework and far greater reliance on the interest rate tool instead of the Fed’s balance sheet. He also supports a retreat from detailed forward guidance that, he argued, led officials to cling too long to incorrect forecasts.

Sen. Thom Tillis (R-N.C.) notably pledged to block any Fed nominees until the Department of Justice completes its probe of Powell. During the hearing, Tillis continued to express his disdain with the investigation while simultaneously acknowledging Warsh for having “extraordinary credentials.”

“If we put everybody in prison in the federal government that had a budget go over, we’d have to reserve an area roughly the size of Texas for a penal colony,” Tillis said. “Let’s get rid of this investigation so I can support your confirmation.”

Republicans repeatedly highlighted Warsh’s promise to shrink the balance sheet over time, arguing that its growth since 2008 has disproportionately boosted asset prices and widened inequality while doing less for households without significant financial holdings. Warsh agreed, describing large‑scale asset purchases as “fiscal policy in disguise” and saying the Fed should return to using rates as its primary tool.

Several GOP senators also pushed back on the idea that Trump’s public demands for lower rates inherently threaten Fed independence, arguing that presidents of both parties have long lobbied the central bank behind the scenes. Sen. John Kennedy (R‑La.) asked Warsh directly whether he would be Trump’s “human sock puppet.”

“Absolutely not,” Warsh replied, adding that Trump “never asked me to commit to any particular interest rate decision,” and that he would have refused if asked.

Democrats disputed that account, pointing to a report from The Wall Street Journal that Trump pressed Warsh in a White House meeting on whether he would support rate cuts if chosen to lead the Fed.

The WSJ wrote that Trump said Warsh supports lowering rates, adding that others he has spoken to share that view. “He thinks you have to lower interest rates,” Trump said of Warsh in the report. “And so does everybody else that I’ve talked to.”

Sen. Ruben Gallego (D‑Ariz.) read from the story and asked whether Trump or Warsh — or the Journal’s sources — were not telling the truth. Warsh stood by his sworn testimony and did not answer whether he or Trump was telling the truth, but he suggested the WSJ reporters “need better sources or better journalistic standards.”

Senators in both parties signaled deep interest in how Warsh would handle the economic impact of artificial intelligence and other fast‑moving technologies. Warsh has argued that an AI‑driven investment boom could raise the economy’s underlying potential and be “structurally disinflationary,” allowing lower rates over time.

Warsh said the Fed will need “much better data” and a major overhaul of how it measures inflation and productivity, including broader use of “trimmed” measures that strip out extreme price moves. He argued that monetary policy must remain flexible and that central bankers must be willing to “correct mistakes fast” when conditions change.

The committee ended the hearing by notifying members that they have until noon on Wednesday to submit written follow‑up questions. Warsh is expected to respond by Thursday afternoon as members weigh whether to advance his nomination to a full Senate vote.

Industry reactions

Mortgage professionals are focused on how investor sentiment and rates will be impacted by the hearing and Warsh’s vision for the Fed.

Thomas Hulick, CEO of Strategy Asset Managers, said that the markets are “focusing on signals” for how Warsh would approach inflation, rate policy and the Fed’s broader communication strategy.

“His background across both policy and markets implies a more pragmatic, data-driven approach at a time when investors are looking for more clarity and consistency,” Hulick said in a statement. “He has also been a notable critic of recent Fed policy, particularly around inflation and balance sheet expansion, pointing to a potentially more disciplined approach to inflation and less reliance on tools like quantitative easing.

“That said, any perceived shift in how the Fed responds to economic data could introduce near-term volatility as markets recalibrate expectations, especially with Powell’s term set to expire on May 15.”

Michael McGowan, managing director of investment strategy at Pathstone, said that Warsh’s track record points to a “hawkish policy bias.” He noted that Warsh has historically favored a smaller, less accommodative Federal Reserve.

“That stance appears at odds with the idea of a fully accommodative Fed, but it may reflect a broader policy trade-off,” McGowan said. “If Treasury Secretary Bessent can secure meaningful reform of the Supplementary Leverage Ratio, allowing banks to hold more Treasuries, the Fed could step back from balance sheet support.

“The implications for the Treasury market are significant, with both upside and downside risks for liquidity and volatility.”