Reserve

WASHINGTON — The Senate confirmed President Trump’s nominee to lead the Federal Reserve, Kevin Warsh, bringing new leadership to the world’s most powerful central bank at a fraught moment for the global economy.

Warsh was confirmed Wednesday in a largely party-line vote. His nomination had been thrown into doubt in recent months after Republican Sen. Thom Tillis of North Carolina said he would block the nomination while the Justice Department investigated Fed Chair Jerome H. Powell. The Powell inquiry was dropped in April, clearing the way for the Senate to confirm Warsh.

Senate Majority Leader John Thune (R-S.D.) urged colleagues to support Warsh during a floor speech Wednesday morning, saying it’s crucial that a Fed chair “understand not only the macro” but also “appreciate the microeconomy: and that’s the hardworking Americans, their jobs and their livelihoods.”

“Kevin Warsh is just such a person,” Thune said.

Warsh, 56, a former top Fed official, will become chair at an unusually difficult time for the independent agency.

Inflation has topped the Fed’s 2% target for five years and is now rising faster because of surging gas prices. The Fed’s interest rate-setting committee is divided and saw the most dissenting votes in more than three decades last month. And Powell, after years of personal attacks from the Republican president and an unprecedented legal investigation by the Justice Department, plans to stay on the Fed’s board even after his term as chair ends, potentially creating a competing power center.

Trump has demanded change at the Federal Reserve

The Fed has faced numerous threats to its independence from Trump, who has repeatedly attacked Powell for not cutting interest rates. Trump also sought to fire Fed Gov. Lisa Cook and launched an investigation into brief Senate testimony by Powell on a building renovation.

Kevin Hassett, director of the White House’s National Economic Council, said in a Fox News interview on Sunday that he believes the markets are relieved that Warsh “is going to help lower interest rates over time.”

“Obviously, data driven,” said Hassett. “I’m not putting any pressure on Kevin Warsh.”

In December, Trump said on his social media platform that he wanted a Fed chair who would cut interest rates when the stock market rose — the opposite of what traditional economics would prescribe — and added, “Anyone that disagrees with me will never be the Fed chairman!”

Trump’s comments have fueled concerns over whether Warsh will set rates based on economic conditions or seek to cut rates to appease Trump, even if doing so could worsen inflation. At Warsh’s confirmation hearing last month, Sen. Elizabeth Warren, a Democrat from Massachusetts, derided him as a “sock puppet” for Trump. Warsh declined to say that Democrat Joe Biden had won the 2020 election against Trump, who has falsely claimed that voter fraud cost him reelection.

Still, Warsh denied at the hearing that Trump had pressured him to reduce the Fed’s key rate.

“The president never once asked me to commit to any particular interest rate decision, period,” Warsh said then. “Nor would I ever agree to do so if he had. … I will be an independent actor if confirmed as chair of the Federal Reserve.”

A critic of the Fed’s leadership in the past

Warsh has been highly critical of the Fed’s recent track record, particularly the inflation spike in 2021-22, the worst in four decades, and has called for “regime change.” Yet he has provided only broad outlines of what that change would involve.

He has called for limiting the Fed’s communications, which would be a sharp shift after decades of increasing transparency. He has argued that some of its communications tools, such as quarterly forecasts of where its key rate may head, have made it harder for officials to switch gears.

Senate Democrats also have condemned Warsh for not fully divulging the details of his extensive wealth, which disclosures show amounts to at least $100 million. His investments include stakes in Polymarket and SpaceX, but he hasn’t revealed how large those holdings are. He promised to sell all such assets within 90 days of being sworn in.

“He will be the wealthiest Fed chair in history, but he refuses to provide transparency to the American people about who he is entangled with,” Warren said.

Warsh faces difficult economic conditions

The Fed is still grappling with how to respond to the 50% jump in gas prices from the Iran war. The increase has boosted inflation, which reached 3.8% in April.

The Fed is tasked by Congress with keeping prices stable, which it seeks to do by raising its short-term rate to make borrowing and spending more expensive, cooling growth and inflation.

The Fed typically looks past temporary price increases that stem from supply disruptions, such as the war’s cutoff of oil through the Strait of Hormuz, because those prices typically level off — or even fall back down — once the supply is restored.

But the Fed also followed that approach after the COVID-19 pandemic snarled global supply chains for goods, lifting prices for things such as cars, furniture and electronics. Inflation turned out to last longer than expected, and Powell and other Fed officials have acknowledged they waited too long to raise rates. Inflation surged to 9.1% by June 2022.

The Fed’s rate-setting committee has kept rates unchanged for three straight meetings as it evaluates the effect of the gas price spike. At its most recent meeting last month, three members of the committee objected to language that suggested its next move would be a rate cut. They preferred more neutral language that would allow for a hike. Many Fed watchers saw those dissents as a warning shot to Warsh that he won’t be able to easily engineer rate reductions.

A fourth member of the 12-member committee, Stephen Miran, dissented in favor of a rate cut, as he has at every meeting since Trump appointed him to the Fed’s board last September. Miran is serving until a replacement is named, and Warsh will take his spot.

Powell, meanwhile, said at a news conference April 29 that he would remain as a Fed governor until the Justice Department closes its investigation into the Fed’s building project, the first time a chair may stay on the board for an extended period since 1948. His term as a governor lasts until January 2028.

U.S. Atty. Jeanine Pirro has dropped the government’s investigation, but she has said it could be reopened if the Fed’s inspector general office, which has looked into the renovation project since last July, finds evidence of criminal activity.

Rugaber and Cappelletti write for the Associated Press.

May 13 (UPI) — The U.S. Senate voted to confirm Kevin Warsh on Wednesday as the new chairman of the Federal Reserve. Warsh, who was nominated by President Donald Trump, succeeds Jerome Powell, who has been frequently criticized by the president for not lowering interest rates in accordance with Trump’s demands.

The Senate voted 54-45 to confirm Warsh in the most partisan vote for a chair nominee in history, CNN reported. Sen. John Fetterman, D-Pa., was the only Democrat to vote in favor of the confirmation.

Warsh will be the 17th chair of the central bank, which is traditionally politically independent. However, Trump has aimed a great deal of criticism at the Fed and its governors over that independence, insulting Powell harshly at times and threatening to fire him.

The president also supported a Justice Department investigation into Powell, allegedly over costs for the central bank headquarters renovation. Powell has said that Trump targeted him because of the Fed would not follow his orders on interest rates. The Justice Department dropped the investigation in late April.

Democrats have expressed concerns about Warsh’s independence from Trump if confirmed. The new Fed chair has said he will be “an independent actor” but also promised a “regime change” at the central bank, The New York Times reported.

Warsh is the wealthiest Fed chair nominee in recent history, with a net worth over $100 million. He is married to Jane Lauder, who is an heir to the Estee Lauder fortune, and also has about $192 million in assets in combination with her.

Warsh said that he would divest a large amount of his assets and resign from several positions if confirmed. He also served as a governor at the Federal Reserve from 2006 to 2011.

Powell’s term as chair ends Friday, but he has said he’ll stay as a fed governor for his remaining two years.

WASHINGTON — Federal prosecutors made an unannounced visit this week to a construction site at Federal Reserve headquarters that is the focus of an investigation into a $2.5-billion renovation project, according to two people familiar with the visit.

Two prosecutors and an investigator from U.S. Atty. Jeanine Pirro’s office were turned away on Tuesday by a building contractor and referred to Fed attorneys, one of the people said. The two people familiar with the visit spoke on condition of anonymity because they weren’t authorized to publicly discuss an ongoing investigation.

The visit underscores that the Trump administration is not backing down from its investigation of the Fed and its chair, Jerome Powell, even though the probe has delayed the confirmation of a new chair nominated by President Trump. The investigation is focused on cost overruns and brief testimony about the project last summer by Powell. Trump confirmed in an interview that aired Wednesday on Fox Business that he wants to continue the probe.

Last month, during a closed-door hearing before a federal judge, a top deputy from Pirro’s office conceded that they hadn’t found any evidence of a crime in their investigation of the headquarters project.

Robert Hur, an attorney for the Federal Reserve board of governors, sent an email to Pirro’s prosecutors about their visit and their request for a “tour” to “check on progress” at the construction site. Hur’s email, which the Associated Press has viewed, noted that U.S. District Judge James Boasberg concluded that their interest in the Federal Reserve’s renovation project was “pretextual.”

“Should you wish to challenge that finding, the courts provide an avenue for you; it is not appropriate for you to try to circumvent it,” Hur wrote.

Republican Tillis is key vote

Sen. Thom Tillis, a North Carolina Republican who is a key member of the Senate Banking Committee, has vowed to vote against Kevin Warsh, Trump’s nominee to replace Powell as Fed chair, until the investigation is dropped. With the committee closely divided on partisan lines, Tillis’ opposition is enough to block Warsh.

The Banking panel said Tuesday that it will hold a hearing on Warsh’s nomination April 21. Powell’s term as Fed chair ends May 15, but Powell said last month he would remain as chair until a replacement is named.

Powell is serving a separate term as a member of the Fed’s governing board that lasts until January 2028. Chairs typically leave their posts as governor when their terms as chair end, but they can remain on the board if they choose.

Last month, Powell said, “I have no intention of leaving the Board until the investigation is well and truly over, with transparency and finality.” If he remains in his seat, even after Warsh is confirmed, it would deny Trump the oppotunity to fill a seat on the seven-member board.

Late Tuesday, Tillis posted a link on social media to the Wall Street Journal’s article on the visit below an image of the Three Stooges and wrote, “The U.S. Attorney’s Office for D.C. at the crime scene.”

Investigation centers on building renovations

The investigation by Pirro’s office centers on an appearance by Powell before the Senate Banking Committee last June, when he was asked about cost overruns on the Fed’s extensive building renovations. The most recent estimates from the Fed suggest the current estimated cost of $2.5 billion is about $600 million higher than a 2022 estimate of $1.9 billion.

“It is probably corrupt, but what it really is, is incompetent,” Trump said on Fox Business. “Don’t you think we have to find out what happened there?”

The president’s support for the investigation threatens a time frame set out by Sen. Tim Scott, a South Carolina Republican who chairs the Banking Committee. Scott said Tuesday on Fox Business that he believed the investigation would be “wrapped up in the next few weeks,” allowing Warsh to be confirmed soon after.

Threat to fire Powell

News of the unannounced visit by prosecutors comes as Trump has again threatened to fire Powell, if the Federal Reserve chair decides to stay on the central bank’s governing board after his term as chair expires next month.

“Well then I’ll have to fire him, OK?” Trump said when reminded that Powell has said he won’t leave the Fed while the Justice Department investigates a $2.5-billion renovation project at the bank. Powell has also said he will remain as chair of the Fed’s rate-setting committee until a replacement is confirmed by the Senate, following the precedent of previous chairs.

Trump has for months wanted to remove Powell as chair of the Fed, saying he has been too slow in orchestrating interest rate cuts that would give the U.S. economy a quick boost. Powell has said the investigation is a pretext to undermine the Fed’s independence to set rates.

Supreme Court weighing another Trump removal

Trump’s threat to fire Powell comes as the Supreme Court is weighing the president’s effort to remove another central bank governor, Lisa Cook. Lower courts have so far allowed Cook to remain in her job while her legal challenge to the firing continues. The Supreme Court also seemed likely to keep her on the Fed when the court heard arguments in January. A decision could come any time.

The issue in Cook’s case is whether allegations of mortgage fraud, which she has denied, is a sufficient reason to fire her or a mere pretext masking Trump’s desire to exert more control over U.S. interest rate policy.

The Supreme Court has allowed the firings of the heads of other governmental agencies at the president’s discretion, with no claim that they did anything wrong, while also signaling that it is approaching the independence of the nation’s central bank more cautiously, calling the Fed “a uniquely structured, quasi-private entity.”

Kunzelman and Rugaber write for the Associated Press. AP Writer Mark Sherman contributed to this report.