Fed Chair Nominee Warsh Faces Hurdles in U.S. Senate

"End Investigation Into Chair Powell First"
Democrats Put Confirmation on Hold...Republican Defections Also Possible

Kevin Warsh, a former Fed governor who has been nominated as a candidate for the next chair of the Federal Reserve (Fed), has run into a wall in the U.S. Senate. Democratic senators on the Senate Committee on Banking, Housing, and Urban Affairs, which reviews the nomination before a full Senate vote, have moved to put his confirmation on hold. They say they will not move forward unless the U.S. Department of Justice halts its investigations into current Fed Chair Jerome Powell and Fed Governor Lisa Cook. With potential defections emerging among Republicans as well, even getting the nomination through the committee has become uncertain.

According to the Financial Times (FT) on the 3rd (local time), 11 Democratic members of the Senate Banking Committee sent a letter to Committee Chairman Tim Scott (Republican, South Carolina), demanding that the committee postpone consideration of Warsh’s nomination "until the spurious criminal investigations into Chair Powell and other Fed governors are brought to a close."

Kevin Warsh, a former Fed governor, was nominated as a candidate for the next chair of the Federal Reserve (Fed). Reuters Yonhap News

In the letter obtained by the FT, the Democratic senators said, "The Trump administration’s attempt to seize control of the Fed through criminal prosecutions is dangerous and unprecedented," adding, "It is, in itself, outrageous to allow the president to personally nominate the next Fed chair while his Department of Justice is pursuing criminal investigations against two sitting Fed officials." They further stressed, "The Banking Committee must not participate in these absurd efforts that risk undermining confidence in our democracy and in financial markets." President Donald Trump nominated Warsh as the next Fed chair on the 30th of last month. The Senate Banking Committee reviews the nomination before it goes to a vote in the full Senate.

The mood among Republicans is also turning uneasy. Of the 24 members on the Senate Banking Committee, 13 are Republicans. However, on the 30th of last month, Republican Senator Thom Tillis of North Carolina broke with President Trump. On the social networking service X (formerly Twitter), he announced that he would oppose the confirmation of all Fed nominees, including Warsh, until the investigation involving Chair Powell is resolved fully and transparently. If the vote on Warsh’s confirmation splits along party lines, Tillis’s vote would produce a 12-to-12 tie in the committee. In that case, Warsh’s confirmation would be blocked at the committee stage. Confirmation of a Fed chair must pass both the Senate Banking Committee and a vote of the full Senate.

The FT assessed that "the difficulty in advancing the confirmation of Warsh, who is regarded as a mainstream candidate enjoying broad support in both Congress and on Wall Street, shows that the White House’s attacks on the Fed and Chair Powell now risk backfiring."

The U.S. Department of Justice recently opened an investigation into Chair Powell, citing cost overruns in the budget for renovating the Fed’s headquarters. Powell has argued that this is a "retaliatory investigation" against him for resisting President Trump’s pressure to cut interest rates. In August last year, President Trump, calling Governor Cook a "hawk" who favors monetary tightening, claimed she had committed mortgage fraud and sought to dismiss her. Cook filed suit and won favorable rulings in both the first and second instances, and after the Trump administration appealed, the case is now before the Supreme Court.

The previous day, when asked whether U.S. Attorney Jeannine Pirro for the District of Columbia should continue the investigation into Chair Powell, President Trump said, "She will see it through to the end," adding, "This could be gross incompetence, or some kind of theft, or kickbacks. I don’t know what it is, but Jeannine Pirro is really remarkable, and she will get to the bottom of it in the end."