Warsh pushes his plan for ‘regime change’ at Senate hearing: Analysis

Kevin Warsh faced searching questions at his Senate confirmation hearing Tuesday. Democrats and even at times Republicans challenged his complicated finances, his relationship to President Donald Trump and what often seems like a wide-eyed endorsement of the promise of artificial intelligence. But one core issue for Warsh went all but unquestioned: his plan for what he calls “regime change” at the Federal Reserve. 

Warsh has planned for years to sharply change the way the Fed operates, down to the very definition of the word “inflation.” That plan came through the hearing largely intact, leaving Warsh in a strong position if confirmed quickly to attempt an overhaul of the Fed. Any attempt at major changes will certainly spark dissent and disagreement within the Fed, as will his efforts to quickly lower interest rates. But Warsh said Tuesday he welcomes a “good family fight,” and objections from the Fed’s other policymakers may only be an advantage in Warsh’s eyes as he seeks to overturn their way of doing business. 

Warsh has faced attacks on his credibility since Trump nominated him in January. The president has publicly demanded interest rates be lowered to as low as 1%. He attempted to fire one Fed governor and has encouraged his Department of Justice to move ahead with an investigation of current Fed Chair Jerome Powell. The courts are adjudicating those issues.

Warsh tried to dispel worries about Trump. “The president never generally or specifically instructed me or suggested I should commit to any interest rate path whatsoever,” he told senators under repeated questioning about what he may have said to Trump.

But that followed a number of difficult exchanges.

“I must commend you on the way you can circularly go around questions and not answer them,” Sen. Jack Reed, D.-R.I., told Warsh. “It’s a skill. Unfortunately, it’s not a good skill for the chairman of the Federal Reserve Board.”

Some prominent former Fed officials have also expressed doubts. Former Chair Janet Yellen said recently that she believes Warsh would have a hard time swaying the Federal Open Market Committee, where he would need a majority of 11 other votes to change rates. “I really don’t see the FOMC accepting this in the short run,” Yellen said.

Perhaps not, and while Warsh can’t totally ignore other Fed officials, he has spent his time since leaving an earlier stint on the Fed in 2011 defining himself in opposition to them. 

“Milton Friedman had a phrase that always stayed with me,” Warsh said at the hearing. Warsh once worked as a research assistant for Friedman, an influential conservative economist. “He always worried about government officials that lured and hung around with what he called the tyranny…