President Donald Trump’s nomination of Kevin Warsh to lead the Federal Reserve has landed in the Senate. What happens next is less clear.
Warsh, a former Fed governor, is expected to face a tough confirmation process even with Republicans controlling the chamber. The immediate obstacle isn’t opposition to Warsh himself. Instead it is an investigation into current Fed Chair Jerome Powell that has created a procedural standoff inside the Senate Banking Committee.
Sen. Thom Tillis of North Carolina, a Republican on the panel, has said he wouldn’t support moving any Fed nominations forward until the Justice Department resolves its probe into Powell. The investigation centers on Powell’s testimony to Congress last year about cost overruns tied to renovations at the Fed’s Washington headquarters.
Tillis, who plans to retire at the end of his Senate term, says the probe risks undermining the central bank’s independence and has framed his blockade as a matter of principle rather than a judgment about Warsh. “I have no earthly idea what the market reaction would have been if suddenly the perception is that the Fed chair serves at the pleasure of the president,” he told reporters on Tuesday.
Tillis met with Warsh on Tuesday afternoon, “I thoroughly enjoyed my meeting yesterday with Fed Chair nominee Kevin Warsh,” he wrote in a social media post. “He possesses impeccable credentials and a clear vision for maintaining the Fed’s independence while achieving its dual mandate. It is unfortunate that an ongoing investigation prevents me from voting.”
The position has left the nomination process in a kind of procedural limbo.
Before reaching the Senate floor, Warsh must first clear the Banking Committee, which typically holds a confirmation hearing, sends written questions to the nominee and then votes on whether to advance the nomination. Republicans hold a narrow majority on the panel, and without Tillis they likely don’t have the votes to move the nomination forward.
That means the fate of the investigation into Powell could determine the pace of Warsh’s confirmation.
One possibility is that the probe ends quickly. Senate Banking Committee Chair Tim Scott has suggested that outcome is likely. Scott said on CNBC Wednesday that he hoped the investigation would simply “go away,” allowing the committee to proceed with the nomination.
Such an outcome could happen in several ways. The Justice Department could formally close the matter without bringing charges. A court could also limit or quash the subpoenas issued to the Fed, effectively ending the dispute. Either move would give Tillis the resolution he says he needs to allow the nomination to move forward.
Another possibility would be for the committee to proceed with the confirmation hearing but delay the vote. That approach would allow senators to question Warsh and begin the vetting process while the investigation continues. The committee could then wait to schedule a vote until the legal situation surrounding Powell becomes clearer.
It’s possible, though unlikely, that Warsh is able to garner some Democratic votes, which would allow the vote to proceed.
The Senate calendar may ultimately force some version of compromise. Powell’s term as Fed chair ends on May 15.
Historically, confirmation hearings for Fed chairs are held months before the transition to avoid a leadership gap at the central bank. Warsh’s nomination arrived later in the process than usual, leaving less room for delays. The Senate breaks for the first two weeks of April, meaning that if there is no hearing and vote scheduled by the end of the month, they face a serious crunch.
If the investigation drags on, lawmakers may face a choice between moving ahead despite the dispute or risking a scenario in which Powell’s term expires without a Senate-approved replacement.
Warsh, meanwhile, has already begun the traditional round of meetings with senators on Capitol Hill. Republican lawmakers who have met with him have largely praised his credentials. Sen. Jim Banks of Indiana said on Wednesday that Warsh understands “the importance of bringing down high costs and interest rates for working families” and said the Senate should confirm him quickly.
Warsh served as a Fed governor from 2006 to 2011 and has since worked in finance and at Stanford University’s Hoover Institution. Many market participants see him as a candidate likely to favor lighter bank regulation and a more rules-based approach to monetary policy.
Trump has repeatedly criticized Powell for not lowering interest rates more aggressively. Powell has denied wrongdoing in connection with the renovation investigation and has suggested the probe itself reflects political pressure on the central bank.
For now, Warsh’s nomination is caught in the middle of that fight.
Write to Nicole Goodkind at nicole.goodkind@barrons.com