On Tuesday (April 21), Kevin Warsh's Senate confirmation hearing proceeded as scheduled. The nominee for Federal Reserve Chair, nominated by President Trump, faced sharp questioning from both parties, with his financial situation, political connections, and policy proposals becoming the focus of controversy. However, among the many questioned issues, one core idea received almost no opposition: Warsh's plan to implement a "systemic overhaul" at the Federal Reserve—a comprehensive reform aimed at fundamentally changing the Fed's operating model.

Judging from the overall direction of the hearings, if Warsh can successfully obtain Senate approval, he will quickly move forward with the reform, even though it will inevitably cause division and controversy within the Federal Reserve, he has already made preparations to deal with it.

Joint questioning by both parties, embroiled in multiple controversies

During his Senate confirmation hearing, Walsh faced sharp and comprehensive questioning, including strong criticism from Democratic senators and questions from some Republican senators regarding his background.

The questioning focused on three main areas: first, his complex financial situation, with lawmakers concerned that his financial background might affect the impartiality of his decisions during his tenure at the Federal Reserve; second, his close relationship with President Trump, with many lawmakers suspecting that his policy proposals might excessively cater to the president's demands, thereby undermining the Fed's independence; and third, his strong support for the prospects of artificial intelligence, which some lawmakers considered too blind and lacking sufficient factual basis.

Despite the controversies surrounding him, Warsh maintained a firm stance throughout the hearings, particularly on his core Federal Reserve reform plan, where he remained uncompromising. In fact, for years, Warsh has been committed to fundamentally changing the way the Federal Reserve operates, even planning to adjust the definition of the core economic term "inflation." This hearing was simply an important occasion for him to further clarify his reform stance and convey his determination to reform.



Warsh stated that if he can obtain Senate approval quickly, he will immediately launch a comprehensive reform of the Federal Reserve, and his current position provides certain advantages for advancing the reform.

It is well known that any major reform attempt will inevitably trigger internal disagreements and controversies within the institution, and Warsh's proposed Federal Reserve reforms are no exception. In particular, his advocacy for rapidly lowering interest rates has long been anticipated to face opposition from many policymakers within the Fed. However, Warsh appeared quite composed in the face of this anticipated resistance. At Tuesday's hearing, he explicitly stated that he welcomed "a heated internal debate." In his view, the objections of other policymakers were not obstacles, but rather could become an advantage for him to overturn the existing operating model and push forward with reforms. This tough stance also made the members of Congress present feel his determination to push forward with reforms.

Trump's nomination sparks credibility controversy; Walsh vehemently distances himself from the controversy.

It is reported that President Trump recently publicly stated his demand that the Federal Reserve lower interest rates to the minimum level of 1%, a demand that coincides with Warsh's advocacy for interest rate cuts, further exacerbating external doubts. In addition, Trump has attempted to fire a Federal Reserve official and encouraged the U.S. Department of Justice to investigate current Federal Reserve Chairman Jerome Powell; these matters are currently under court adjudication and no final results have been reached. Against this backdrop, whether Warsh can maintain the independence of the Federal Reserve during his tenure has become one of the key focuses of the hearings.

Faced with repeated questioning from lawmakers, Warsh tried his best to allay people's concerns, stating clearly, "The president has never given me any general or explicit instructions, nor has he ever suggested that I should adopt any specific interest rate adjustment strategy." He attempted to demonstrate through this statement that he would not be swayed by the president's demands and could maintain independent judgment in the Federal Reserve's decision-making. Even so, many lawmakers remained skeptical of his statement, believing he was deliberately avoiding the issues and obscuring his position.

Democratic Senator Jack Reed of Rhode Island directly questioned Warsh, telling him, "I have to commend you for your skillful way of circumventing questions without directly answering them; that's a technique. But unfortunately, it's not a good skill for a Federal Reserve Chair." Reed's remarks directly pointed out the senators' dissatisfaction with Warsh's statements and reflected the continued partisan divide on his qualifications for the position.

A former Federal Reserve official has raised questions, arguing that Warsh had already distanced himself from the existing system.

In addition to questioning from senators, several prominent former Federal Reserve officials have also expressed doubts about Warsh's qualifications and reform plans. The most representative of these is former Federal Reserve Chair Janet Yellen. Yellen recently stated publicly that she believes Warsh will find it difficult to truly influence the decisions of the Federal Open Market Committee (FOMC) because he needs 11 additional votes to change existing interest rate decisions, which is virtually impossible in the short term. Yellen further added, "In my view, the FOMC is unlikely to accept his proposals in the short term."

However, such criticism may not be entirely valid. While Warsh could not completely ignore the opinions of other Federal Reserve officials, nor could he force decisions to be implemented, since leaving his previous position at the Fed in 2011, he has consistently expressed his differing stance from existing policymakers through various means, adhering to his reform ideals without wavering. This stance of distancing himself from the existing system has also freed him from many ideological constraints in promoting reforms, allowing him to more firmly implement his propositions.

During the hearing, Warsh also cited the views of a prominent economist to support his reform stance, stating, "There's a quote from Milton Friedman that I've always kept in mind." It is understood that Warsh had previously served as Friedman's research assistant. Friedman was an influential conservative economist who advocated for free markets and opposed excessive government intervention in the economy, which profoundly influenced Warsh's policy ideas.

Walsh further quoted: "He was always worried about government officials who would tempt others to align themselves with the so-called status quo authoritarianism. When the world is changing so rapidly, the conventions and policies of the status quo are especially harmful."

It's clear from Warsh's statement that he views the current operating model of the Federal Reserve as "status quo authoritarianism," believing that such rigid practices and policies are no longer suitable for a rapidly changing world and must be completely broken. This is precisely the core motivation behind his "systemic reform" plan: to overthrow the Fed's existing operational inertia and establish a completely new, more flexible decision-making system.

Reform blueprint revealed: Breaking with convention, completely reshaping the Fed's operating model.

At this hearing, Warsh revealed his blueprint for Federal Reserve reform for the first time, with a series of unconventional measures that attracted attention, each of which directly addressed the pain points in the Fed's current operations.

First, Warsh made it clear that he would refuse to commit to continuing to hold regular press conferences , which have been an important way for the Federal Reserve to convey policy signals and interpret decision-making intentions since the financial crisis. Canceling them would completely change the way the Federal Reserve communicates with the market.

Secondly, Warsh plans to abandon the Federal Reserve's long-standing forward guidance . Forward guidance is a crucial tool for the Fed to communicate its future interest rate direction and policy stance to the market, helping the market anticipate policy changes and stabilize market expectations. Warsh argues that this forward guidance not only fails to effectively stabilize the market but may also limit the Fed's decision-making flexibility, and therefore must be abandoned.

Even more shockingly, Warsh also plans to abandon the core PCE price index, a key measure of inflation favored by the Federal Reserve . This index, compiled and published by the Bureau of Economic Analysis of the U.S. Department of Commerce, was adopted by the Federal Open Market Committee (FOMC), the Fed's policy-making body, in 2002 as a primary measure of inflation. Its spending composition better reflects actual consumer behavior, its weighting is broader, and it provides a more comprehensive and stable measure of U.S. inflation, having long been an important reference for the Fed's monetary policy. However, Warsh dismisses this index, calling it "merely a rough guess about price movements," emphasizing, "We no longer need to make such rough guesses."

Many believe that Warsh's proposals are merely superficial, a gesture to appease Trump's demands. However, these reforms are not empty talk, but key tools for lowering long-term interest rates and alleviating economic pressure on the American people. Warsh argues that the current high interest rates in the US market, troubling mortgage and credit card costs for many, stem from serious policy inconsistencies within the Federal Reserve. This inconsistency is not only reflected in the post-COVID-19 inflation surge but also dates back to earlier periods. In his view, the Fed's long-standing policy errors have eroded its market credibility, and rebuilding that credibility and lowering interest rates requires a fundamental change in the Fed's operating model.

The original intention of the reform: to oppose excessive intervention and to blame the collapse of Silicon Valley Bank on the Federal Reserve's protection.

Warsh's dissatisfaction with the Federal Reserve was not a sudden occurrence, but rather a long-standing one. Back in 2011, Warsh chose to leave the Fed, explicitly stating his opposition to a series of measures that gave the Fed an overly dominant position in the US economy and excessively interfered in the normal functioning of the market. Among these measures, the Fed's asset purchase program (the so-called "quantitative easing") was one of his most opposed. This program, launched during the financial crisis, aimed to inject liquidity and stabilize the market by purchasing financial assets, ultimately resulting in the Fed's balance sheet accumulating $6.7 trillion in financial assets.

Warsh stated explicitly at the time that while quantitative easing did play a significant role in curbing the financial crisis, its historical mission was long overdue and it should have been abolished long ago. He argued that such large-scale asset purchases not only distorted market pricing mechanisms but also led to excessive market dependence on the Federal Reserve, causing it to lose its own self-regulating capabilities. In a speech in September 2009, Warsh stated, "Successfully overcoming the 2008 financial crisis is a necessary condition, but not a sufficient condition, for laying a solid foundation for peace and ensuring economic prosperity."

In Warsh's policy philosophy, the core problem with the Federal Reserve lies in its excessive intervention in the economy, neglecting "market discipline," which means allowing poorly managed businesses to fail and enabling the market to optimize resource allocation through its own self-regulating mechanisms. He pointed out that the Fed's long-standing practice has been to rush to intervene as soon as it detects any problems in the economy. This overprotective attitude has led to the economy operating far below its proper level, businesses lacking the motivation for innovation and competition, and market vitality being severely suppressed.

In 2023, Silicon Valley Bank and several other financial institutions collapsed, subsequently receiving bailouts from the Federal Reserve and other government agencies. This event further solidified Warsh's views. In an interview that year, he explicitly stated that the root cause of Silicon Valley Bank's collapse lay in the Federal Reserve's excessive protection of the economy. He said, "A decade of interest-free funding, negative real interest rates, and massive asset purchases by central banks around the world from their own fiscal departments led to widespread overconfidence in financial markets, regulators, and market participants." This overconfidence ultimately triggered operational risks in financial institutions, leading to their collapse.

It is worth noting that Yellen once stated that the core issue behind Silicon Valley Bank's bankruptcy was the Federal Reserve's continuous interest rate hikes, while Warsh attributed it to the Fed's long-term over-protection, creating a stark contrast between the two views.

With the prospect of interest rate cuts uncertain, the time advantage becomes a key bargaining chip.

One of the core goals of Warsh's reform plan is to push the Federal Reserve to lower interest rates to meet President Trump's demands and alleviate economic pressure on the American people. However, given the current situation, it is uncertain whether Warsh can immediately provide strong evidence for the interest rate cuts demanded by Trump, as his reform plan requires time to implement and opposition within the Federal Reserve remains strong.

However, Warsh is not without advantages; his biggest asset is time. As his nomination is delayed in the Senate, the Federal Reserve and other central banks will have to reassess the current economic situation, especially as the oil price shock from the Iran war gradually subsides, and market focus will return to the weakness of the US labor market. This weakness is precisely a key factor supporting interest rate cuts. Once the market generally believes that rate cuts are reasonable, Warsh's proposals for rate cuts will gain more support, and his reform plans will be easier to implement.

Warsh has consistently maintained that the Federal Reserve's current problem lies not in its misjudgments of interest rates, but in its flawed understanding of the world since the financial crisis. In his view, simply raising or lowering interest rates by 0.25 percentage points cannot solve the fundamental problems of the US economy, nor can it rebuild the Fed's market credibility. Instead, to truly resolve the issues, it is essential to send someone into the Fed to fundamentally change its operating philosophy and model, demonstrating to the market and the public that new leadership has taken office and the Fed is entering a new phase of development.

Furthermore, another viewpoint suggests that even with strong internal opposition within the Federal Reserve, Warsh's Senate approval and appointment could actually help demonstrate to the public that the current Fed is a lost and stagnant institution in dire need of radical reform to reshape its image and get back on track. The Senate's current stance, at least, shows no clear indication of opposition to Warsh's nomination, which provides some possibility for his appointment and reform plans.

In summary , Warsh's Senate confirmation hearing was not only a test of his personal qualifications but also a prediction of the future direction of the Federal Reserve. Despite facing bipartisan questioning and skepticism from former Fed officials, and with his reform plans fraught with uncertainty, his determination to push for institutional change within the Fed and to drive interest rate cuts has never wavered. If Warsh successfully assumes office, the Fed may usher in an unprecedented comprehensive reform, which will not only affect US monetary policy but also have a profound impact on global financial markets. For the American public, this reform may bring lower interest rates and a more relaxed credit environment, but its impact on the Fed's independence and the stability of global financial markets remains to be seen.