MNI INTERVIEW: Capitol Hill To Complicate Warsh's Fed Reforms

Federal Reserve Chair-designate Kevin Warsh will take the helm later this month with limited political support, making it harder for him to lead and reform one the most important economic institutions in the world, Bharat Ramamurti, former deputy director of the National Economic Council during the Biden administration, told MNI. 

"The thing that doomed Warsh to this kind of vote is the fact that he is viewed as very partisan. That's going to make it a lot harder for him to come in and get bipartisan support for some of the things that he wants to do, whether that's in a crisis or otherwise," Ramamurti said in an interview. 

Warsh has called for policy regime change and would like to alter many of the Fed’s practices, including economic modeling, how it communicates with the public, and the long-run size of its bond holdings. Those reforms could be complicated by a narrower base of support on Capitol Hill. 

Warsh's nomination to serve as Federal Reserve chair passed the Senate Banking Committee this week along party lines, with all 13 Republicans on the committee supporting the nomination and all 11 Democrats opposing it. It was the first-ever party line vote for Fed chair in the history of the Senate Banking Committee.

NARROWER SUPPORT

The Senate Banking Committee voted 22-1 for Powell’s chairmanship in 2017 and 23-1 in 2022. It voted 14-8 for Janet Yellen in 2013 and 16-7 for Ben Bernanke in 2009 after the Fed bailed out Wall Street. Paul Volcker received a 16-2 vote in 1983 after sending interest rates skyward and starting a severe recession. 

Senators have now filed cloture on Warsh's nomination, with a vote in the full Senate due in the week of May 11. When the Senate confirmed Bernanke for a new four-year term in 2009 he received a vote of 70-30, the second closest final vote for a Fed chairman after Paul Volcker's 1983 confirmation by 84-16.

"Jay Powell and Janet Yellen passed with overwhelming bipartisan majorities and it looks like Warsh may pick up a Democratic vote or two on the floor but won't get anywhere near the level of support that they had," said Ramamurti, previously a member of the Covid-19 Congressional Oversight Commission. 

That narrower political support may make it tougher for Warsh to reform the central bank and could pose a dilemma should a crisis arise. (See MNI POLICY: Warsh Could Reshape Fed On Rates, Communication) 

"You're going to need and you do need support from Congress in all sorts of ways," Ramamurti said. "If there's a crisis and the Fed is trying to take emergency actions, it's helpful to have some credibility with Congress that you're trying to do the right thing and they won't jump on your back for trying to take quick, decisive action. I think it will make a difference in terms of oversight."

CONGRESSIONAL OVERSIGHT 

Additionally, if Democrats take control of the House of Representatives after the fall midterm elections then Warsh could face tougher hearings, said Ramamurti, a former staffer for Senator Elizabeth Warren.

"The Fed and Warsh could be targeted for oversight in a way that the Fed previously wasn't and the Fed chair has to come testify before Congress periodically." (See MNI INTERVIEW: Fed Winning Fight Over Independence-Richardson) 

"Warsh scans as a much more partisan figure," he said. "Those are going to be much tougher hearings for Warsh. Both Powell and Yellen got a lot of leeway from Congress because they were seen as relatively non-partisan. I just don't think that Warsh will have that at the end of the day."