WASHINGTON— Kevin Warsh used his Senate Banking Committee confirmation hearing Tuesday to signal a more balance-sheet-focused Federal Reserve—telling senators he would protect the central bank’s independence, would not pre-commit to rate cuts and wants “robust” reforms that could matter directly to banks and credit unions through funding costs, securities portfolios and the pace of any future easing.
Warsh did not give the market the clean dovish signal some had been looking for. Reuters reported he told lawmakers President Trump had not asked him to commit to any rate decision, and Warsh declined to say whether he would cut rates now, saying he opposes heavy use of “forward guidance.” Instead, he emphasized a data-driven approach and suggested the Fed should rethink the way it communicates policy.
Warsh also said he wants a smaller Fed balance sheet. Reuters reported ahead of and during the hearing that Warsh has argued for slashing the Fed’s bond holdings, even if he has not fully detailed the exact path. If pursued aggressively, that could keep upward pressure on longer-term yields, affect mortgage and investment portfolio marks, and complicate liquidity and duration management for institutions still carrying underwater securities from the post-2022 rate cycle, analysts stated.
He also criticized the Fed’s post-pandemic framework and said he wants changes to the inflation regime, arguing the central bank’s prior actions helped fuel inflation after COVID.