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The US Senate Banking Committee is scheduled to conduct a confirmation hearing of the nomination of Kevin Warsh as Fed Chair on April 21 at 10:00 AM ET (or 10:00 PM SGT). The Trump administration is aggressively pushing for Warsh to take over by the end of Jerome Powell’s term on May 15.
The primary obstacle to a clean transition remains Republican Senator Thom Tillis, who has vowed to block any Fed nominee until the Department of Justice’s investigation into Powell’s oversight of the Fed’s USD2.5bn renovations is resolved. While the US Attorney's office conceded a lack of criminal evidence, federal investigators made an unannounced visit to the site on April 14, signalling that the probe remains an active political leverage point.
Understandably, Powell has refused to resign under the cloud of the DOJ probe to prevent the Trump administration from characterising his departure as a quiet firing or an admission of guilt before vacating office. On March 18, Powell publicly stated that the investigation was a pretext to undermine Fed independence. He invoked the holdover provision of the Federal Reserve Act to continue serving as Fed Chair until a successor is appointed, while vowing to serve his full term as Fed Governor until January 2028. Powell is effectively forcing the DOJ to either produce a smoking gun or publicly clear him before he steps down.
President Trump has responded by threatening to fire Powell or designate an Acting Fed Chair (potentially Stephen Miran) upon Powell’s term expiry on May 15. The President’s strategy is legally murky and could be challenged by the Board of Governors that backs Powell. A “Two Popes” scenario, in which Powell claims legal leadership while the other claims executive authority, could emerge. Senate Democrats and some Republicans have raised concerns about a shadow chair scenario if the transition is not handled cleanly.
Against the proxy war between Trump and Powell, Warsh will face one of the most volatile confirmation sessions. The eleven Democratic members, led by Senators Mark Warner and Elizabeth Warren, have signalled their intention to delay or disrupt the hearing. (1) Warren is expected to probe Warsh’s USD100mn net worth and his suitability for a role centred on public trust amid cost-of-living concerns. (2) The Democrats will likely ask Warsh to denounce the DOJ’s investigation as politically motivated. His refusal to do so will be framed as an abdication of Fed independence. (3) Senator Tillis may grill Warsh on whether he supports the weaponization of the DOJ. Warsh will lose Tillis’ support if he sides with the administration or lose the President’s favour if he defends Powell. (4) Lawmakers will likely ask about Warsh’s willingness to serve alongside Powell on the Board. A commitment to cooperation would help stabilize the USD, and vice versa.
The endgame of this Fed transition is about the risk premium associated with a contested Fed leadership. Markets will likely treat any “Two Popes” scenario as a referendum on the Fed’s independence, in which Warsh’s alignment with the White House will come under heavy scrutiny. Crucially, the hearing has the potential to undermine the current USD’s haven status just before the expiration of President Trump’s 10-day ceasefire with Iran on April 22.
Quote of the Day
“How inappropriate to call this planet Earth when it is quite clearly Ocean.”
Arthur C. Clarke
April 20 in history
In 1736, French mathematician Pierre Louis Maupertuis began the Lapland expedition to measure latitude and shape of the earth.
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