Kevin Warsh, President Trump’s nominee to replace Jerome Powell as Fed chair, has been making the rounds on Capitol Hill in recent days, securing support from Republican senators he needs for confirmation and maybe a Democrat or two.
Nevertheless, his nomination remains, as one Hill insider put it, “at an impasse,” a source close to the situation told On The Money.
As this column goes to press, Sen. Thom Tillis from North Carolina still isn’t budging from his position that while he supports Warsh’s nomination, he won’t vote him out of the banking committee to the full Senate until the Trump DOJ drops what he considers a politicized investigation of Powell over testimony he gave about the pricey renovations of the Fed’s headquarters.
“Senator Tillis believes Kevin Warsh is a good pick to be Fed chair and will vote to support him out of committee once the investigation into chair Powell is resolved,” his spokesman tells On The Money.
Powell himself denies that he did anything wrong during his testimony and claims the DOJ’s investigation is nothing more than an attempt to insert politics into the decision making of an agency that was created to be independent of such pressure. Powell’s critics including the president believe he underplayed the $2.5 billion price tag of the so-called “Taj Mahal on the Mall,” and that the scrutiny is warranted.
But the continued stalemate, as we have been reporting on these pages, is rankling Wall Street executives at the major firms who worry about several doomsday scenarios if Warsh isn’t installed at the top of the central bank when Powell’s term ends in May.
The Fed, of course, plays a key role in stabilizing markets. The war could get more intense and markets even more volatile, investors and business leaders fret. It’s the main reason every C-suiter I speak to says you don’t need the White House at war with the central bank anytime, but particularly now.
Powell, meanwhile, has already signaled he might stay on as a governor when he relinquishes his chairmanship. He could thwart Trump’s wishes to change the central bank interest rates policy to be more accommodative (aka lower rates). Now he’s saying he might stay as Fed chairman if Warsh isn’t in place, remaining as chair “pro tem.”
A rep for the Fed cited Powell’s past comments that the decision on whether to stay will be “based on what I think is best for the institution and for the people we serve.”
Given President Trump’s disdain for Powell – he believes among other things that he played politics by aggressively slashing rates during the end of Joe Biden’s presidency while going slow during Trump’s first year in office – and that could set up a battle royale at the worst possible time.
You can see a scenario where the White House sues Powell to relinquish the top post.
What happens next is anyone’s guess. As Bloomberg Law recently reported: The “Federal Reserve Act, the statute that created the central bank and governs its operations … doesn’t say explicitly what happens when the chair’s term expires and no replacement has been confirmed.” However Fed experts say Powell has the authority to “holdover” if Warsh isn’t confirmed.
Trump doesn’t seem (at least for now) to be budging by calling off the Powell probe. “The White House remains focused on working with the Senate to swiftly confirm Kevin Warsh as the next Chairman of the Federal Reserve. Warsh’s academic credentials, private sector success, and prior experience on the Fed Board of Governors make him eminently qualified to restore confidence and competence in Fed decision-making,” spokesman Kush Desai said.
Tillis, who is not seeking re-election in the fall, is sticking to his guns despite obvious pressure being applied by GOP senators and even the White House to bend on the Warsh nomination. “Anyone who knows Senator Tillis knows that is not going to happen,” his press rep added. “Senator Tillis has made his position very clear, and it is ultimately up to the Department of Justice to decide whether they want to appeal and drag this process on for months and continue their attack on the Fed’s independence.”
In the meantime, many Wall Street executives are coming around to the belief that Powell could raise interest rates at the end of April, publicly pointing to the rising gas prices from what’s happening with Iran and less publicly asserting his independence from Trump. There’s other stuff on the Fed agenda that gets stymied, like reforming bank capital rules, execs say.
“This is all Trump,” the executive told me. “He can tell (the DOJ) to stop and he just will not.”
