Questions Kevin Warsh needs to answer if he is to become the next Fed Chair

A new CEI paper out today by John Berlau, Ryan Young, and myself offers some questions that Federal Reserve Chair nominee Kevin Warsh should answer at his upcoming hearing.

The Senate does not exist to rubber-stamp presidential appointments. The Constitution is clear in the Senate’s responsibility to advise and consent. Since monetary policy affects everything from mortgage rates and groceries to health care bills and borrowing money, who ends up being the next chair of the Federal Reserve will be of paramount importance.

Years of unconventional policy, persistent inflation concerns, and an expanding institutional footprint have raised fundamental questions about the Fed’s role in the economy. Confirmation hearings are a rare opportunity to demand clarity from the Fed. Senators would be wise to push Warsh to articulate the principles and policy priorities that would define his tenure.

CEI outlined specific questions to guide lawmakers during the Yellen nomination. It has done so again for Kevin Warsh in its latest policy memo, giving lawmakers hard-hitting questions to cut through political rhetoric and get some real answers.

Keeping the Fed free from political pressure

The Federal Reserve’s independence is central to its credibility, yet the institution faces ongoing pressures from both Congress and the executive branch. As the next chair, Kevin Warsh will need to provide a framework for how he intends to navigate these pressures while preserving the Fed’s autonomy. Senators should ask whether he has any institutional reforms in mind to strengthen the central bank’s independence.

Furthermore, Warsh has called for greater coordination between the Fed and the Treasury. Lawmakers should be curious as to how he would approach interactions with the Treasury without allowing fiscal priorities to dictate monetary policy. These issues go directly to the Fed’s evolving relationship with political authority.

Balancing inflation and growth

While serving on the Federal Reserve Board of Governors, Warsh emphasized inflation risks and warned against keeping policy too loose for too long. Despite of his reputation for being an inflation hawk, Warsh recently started advocating for lowering interest rates.

Senators should probe what economic developments justify this shift, which indicators he would rely on to judge inflation policy, and which lessons the Fed should take from the long period of low interest rates after the Great Recession. With uncertainty both domestically and abroad, his answers could reveal whether he will maintain a restrictive stance on inflation or shift toward easier monetary policy. These are the tensions that define modern monetary policymaking.

Unwinding the Fed’s crisis tools

Quantitative easing and forward guidance emerged as emergency measures during the 2007–08 financial crisis, yet both remain as part of the Fed’s toolkit long after that emergency ended.

Forward guidance, which Warsh believes has little role to play in normal times, merits scrutiny. What alternative mechanisms would he rely on to communicate policy intentions, and how confident is he that those mechanisms would function under stress? Senators should also ask whether abandoning forward guidance entirely could reduce complexity without increasing uncertainty or undermining policy credibility.

Warsh has also been skeptical of the Fed’s large-scale asset purchases. He should clarify how he would shrink the balance sheet while keeping interest rates at a level that allows that process to proceed without disrupting markets, and whether he favors any statutory or rule-based limits on the Fed’s holdings.

This clarification is particularly important in light of his recent calls to lower interest rates. Senators should press him on how he intends to reconcile these potentially competing objectives, given that efforts to shrink the balance sheet and ease monetary policy through lower rates can place opposing pressures on overall financial conditions.

Tradeoffs at the heart of the Fed’s mandate

The Fed’s dual mandate requires it to balance jobs and inflation, but those goals can conflict. Senators should demand clarity on how Warsh would balance short-term employment gains against the risk of persistent inflation.

Warsh’s statement that “inflation is a choice” also raises the question of whether policy should be guided by discretion or a formal rule, such as the Taylor rule or a nominal GDP target. One issue that lawmakers should explore is whether Warsh believes the dual mandate itself distorts policy and whether a single price stability mandate would be preferable. The way he approaches these questions about the dual mandate and rules-based policy will clarify his governing philosophy.

The expanding role of the Fed

The Fed’s role extends well beyond monetary policy into bank supervision, including capital and liquidity requirements, stress testing, merger approvals, and systemic risk assessments. Senators should determine whether Warsh believes that this combination of functions creates tensions with the Fed’s independence in setting monetary policy.

Another key question is whether he continues to support a central bank digital currency or CBDC, given his prior endorsement of a Fed-issued digital dollar. Finally, senators should inquire as to whether doing so risks expanding the Fed’s role beyond its dual mandate into broader financial and payments infrastructure. These developments raise broader questions about the scope of the Fed’s mission.

The questions that still matter

Senators should scrutinize Warsh’s stances and how he would act as Fed Chair because these are not abstract debates. They shape inflation, borrowing costs, and the purchasing power of the everyday American. His answers will help determine whether the next phase of US monetary policy delivers stability or avoidable volatility.

Read the whole paper here.