Trump Fed Nominee to Face Tough Hearing04/21 06:08

   Kevin Warsh is taking another step toward his decade-long goal of winning 
the top job at the Federal Reserve by appearing at a hearing before the Senate 
Banking Committee on Tuesday. But the role that he may eventually assume could 
turn out vastly different than what he expected.

   WASHINGTON (AP) -- Kevin Warsh is taking another step toward his decade-long 
goal of winning the top job at the Federal Reserve by appearing at a hearing 
before the Senate Banking Committee on Tuesday. But the role that he may 
eventually assume could turn out vastly different than what he expected.

   Inflation is worsening as the Iran war has spiked gas prices, making it much 
harder for the Fed to implement the interest rate cuts President Donald Trump 
so desperately seeks. The conflict could also slow the economy as well as 
hiring. And if Warsh ultimately becomes chair, he may very well find his 
predecessor, Jerome Powell, still sitting on the Fed's governing board, an 
uncomfortable arrangement that hasn't occurred since the late 1940s.

   Warsh, a former top official at the Fed and a wealthy investor, will likely 
face a range of tough questions at the hearing. Democrats on the committee have 
already signaled they will press him about what they argue is a lack of 
transparency regarding some of his vast financial holdings, which total more 
than $100 million, according to a recent disclosure.

   Another top issue will be Trump's repeated demands for cuts in the Fed's 
short-term interest rate, which has created the perception that Warsh was 
nominated to do the president's bidding. Most other Fed officials have said 
they support keeping the central bank's key rate unchanged, now that inflation 
has begun to rise again.

   Warsh expressed support for the Federal Reserve's independence in written 
remarks released Monday that he will deliver at the hearing.

   He said such political independence is "essential," but he also said it 
wasn't threatened when "elected officials -- presidents, senators, or members 
of the House -- state their views on interest rates." Trump has repeatedly 
urged Powell to cut the Fed's key rate from its current level of about 3.6%.

   Warsh also underscored his commitment to one of the Fed's two congressional 
mandates: Keeping inflation low. He did not mention the other, which is 
pursuing maximum employment.

   "Inflation is a choice, and the Fed must take responsibility for it," Warsh 
said in his prepared remarks. A tight focus on inflation typically leads 
officials to keep interest rates high to cool spending, rather than reducing 
rates to boost the economy, as Trump has demanded.

   While the long-delayed hearing is a necessary step for Warsh, it's not clear 
when the committee may even be able to vote on his nomination. The Justice 
Department is investigating Powell and the Fed over a building renovation, and 
Sen. Thom Tillis, a North Carolina Republican, has said he would effectively 
block Warsh until the probe is dropped.

   "Clearly there's a majority of the committee that's not going to move this 
nomination forward, especially while this sham of a criminal investigation is 
going on," Sen. Tina Smith, a Democrat from Minnesota, told reporters on a 
conference call Monday. "It feels a bit like we're going through the motions 
when we really have not addressed the fundamental challenges that this 
nomination has."

   The turmoil could make a potential transition from Powell to Warsh an 
unusually turbulent one for the world's most important central bank, which has 
typically seen smooth transfers of power. Should the change in leadership prove 
particularly bumpy, it could unnerve markets and lift longer-term interest 
rates.

   Powell's term as chair ends May 15. He said last month that he would remain 
as chair until a successor is named. Powell also is serving a separate term as 
a member of the Fed's governing board that lasts until January 2028. Fed chairs 
typically leave the board when their terms as chair end, but Powell also said 
last month he would remain on the board, even if a new chair is approved, until 
the investigation is dropped.

   When asked about Powell's comments, Trump said he would fire Powell if he 
tried to stay at the Fed. Yet Trump's previous attempt to remove a Fed 
governor, Lisa Cook, has been tied up in courts. During oral arguments in 
January, a majority of justices on the Supreme Court appeared to lean toward 
letting Cook keep her job.