A "Form Over Substance" Fed Hearing: Warsh Avoids Interest Rates, Yet Offers Crypto Reassurance

Original | Odaily (@OdailyChina)

Author | Golem (@web3_golem)

At 10 PM Beijing time on April 21, Federal Reserve Chair nominee Kevin Warsh appeared before the Senate Banking Committee for his confirmation hearing, facing questioning from the committee. According to a report by The Wall Street Journal, the topics covered his commitment to monetary policy and the Fed's independence, among others.

During the hearing, when questioned about the Fed's independence, Warsh stated that he would be independent from Trump, and that Trump had never asked him to commit to any specific interest rate decisions. He further argued that even if Trump had asked, he would never have agreed. Beyond such statements, Warsh avoided answering other questions related to Trump. On monetary policy, Warsh sharply criticized the Federal Reserve institution, arguing that the Fed needs institutional changes in its policy-making process. However, he offered very few specifics on actual monetary policy, mentioning only that the Fed needs to shrink its balance sheet gradually and cautiously, with no clear statements about interest rate cuts.

This was likely intentional on Warsh's part. According to his opening statement obtained in advance by Bloomberg, although his prepared testimony was nearly 2,000 words long—far exceeding the approximately 850-900 words of Powell and former Chair Yellen during their initial hearings—it contained almost no substantive statements on the direction of monetary policy. This move aligns with Warsh's consistent stance that Fed officials should not pre-commit to interest rate views.

However, for investors following this hearing, any expectations they might have had were likely disappointed. In terms of both content and outcome, the hearing held little substantive significance. Bloomberg columnist John Authers even characterized it before it began as a political performance where "form outweighs substance." Ultimately, whether Warsh's nomination is successfully confirmed by the Senate depends on political maneuvering off-stage, not on anything Warsh says at the podium.

The Stubborn Trump and the Innocent Warsh

As previously analyzed by Odaily, the importance of this hearing lay in its potential to decide whether Powell stays or goes after his term expires on May 15. If Warsh's nomination is not confirmed by the Senate this time, Powell is very likely to remain as interim Fed Chair after his term ends. (Related reading: Powell's Reappointment Probability Soars to 98%, Is Trump's "Firing Order" Just Talk?)

Yet, after the hearing, the market still cannot determine whether Warsh's nomination for Fed Chair will be confirmed by the Senate as scheduled, because Thom Tillis, the main figure obstructing Warsh's nomination, didn't even engage in effective dialogue with Warsh.

Thom Tillis had previously stated publicly that he would not support moving Warsh's nomination to a full Senate vote unless Trump drops his investigation into Powell. During the April 21 hearing, Tillis didn't even question Warsh. Instead, he used a set of slides to justify the cost overruns in the Fed building renovation project. Finally, he stated that his dissatisfaction was not directed at Warsh, whom he called "extraordinarily qualified and impeccable," but that he still needed the investigation to end before he could support Warsh's confirmation.

Therefore, the content of the hearing no longer determines the outcome. The key to whether Trump can finally get rid of Powell on time depends on whether the Senate confirms Warsh's nomination promptly, and whether Warsh's nomination proceeds smoothly circles back to whether Trump is willing to drop the investigation into Powell.

On April 21, Trump also discussed the Fed and interest rates in a new interview. He said he would be disappointed if the new Fed Chair (Warsh) did not cut rates quickly, but he also needed to find out the reasons for the Fed building cost overruns. Urging the new Fed Chair Warsh to cut rates and investigating Powell are parallel actions for Trump, who shows no sign of backing down.

As John Authers said, the real game is happening outside the hearing room, and Warsh is even "collateral damage." Either Thom Tillis makes a concession, or Warsh uses the promise of rate cuts as leverage to persuade Trump to drop the investigation into Powell, allowing him to take charge of the Fed sooner. Warsh's relationship with Trump is not ordinary. Warsh's father-in-law, Ronald Steven Lauder, is the sole heir to the international cosmetics giant Estée Lauder Companies and is also a Republican donor and Trump's college classmate. Therefore, if Warsh truly wants to take charge of the Fed soon, he might be able to persuade Trump to drop the investigation.

Otherwise, if this stalemate continues until Powell's term expires and Trump chooses to fire Powell to resolve it, as Odaily previously analyzed, the result might still favor Powell. It's worth noting that according to monitoring by the Odaily Seer Channel, the probability of Powell stepping down as Fed Chair after his term expires on Polymarket remains at 2%. However, upon closer inspection of the settlement rules for this event contract, one finds that if Powell's resignation/removal is announced before the market end date, the market will immediately settle to "Yes" regardless of when the announced resignation/removal takes effect.

Settlement rules for the market on whether Powell will step down as Fed Chair after his term expires

In other words, as long as Trump announces Powell's firing, the event will be settled. Although Powell could file a lawsuit to prevent the President's removal from taking legal effect during litigation, the lawsuit process is lengthy. Therefore, the rule stating "the market is immediately settled as Yes regardless of when the announced resignation/removal takes effect" becomes a potential loophole. (Odaily Note: The above is solely the author's personal judgment and does not constitute any advice.)

Warsh: Digital Assets Are Part of the U.S. Financial Services Industry

However, for the crypto industry, the hearing did contain some noteworthy information. Previously, it was disclosed that Warsh holds a series of assets including cryptocurrencies, Polymarket, and SpaceX stock, which was seen as a sign of his friendly attitude towards the crypto industry.

During the hearing, when questioned about his financial disclosures exceeding $100 million and potential conflicts of interest, Warsh promised to divest related assets before taking office if his nomination is approved. But he further stated that digital assets are part of the U.S. financial services industry, affirming the legitimacy and importance of the crypto industry in the United States. Although it was just a brief mention, having someone poised to take the helm of the most powerful economic position in the world identify as crypto-friendly is undoubtedly good news.