Not Trump's Puppet: Warsh Touts Independence, Seeks Smaller Fed, Rejects CBDC

If confirmed, Warsh would oversee one of the most powerful economic institutions in the world. The Fed helps shape borrowing costs, mortgage rates, job markets and investor sentiment, with a ripple impact on equities and crypto markets.  

Warsh told senators that Americans are still suffering from the sharp rise in living costs arising from the pandemic, while signalling support for a smaller and more focused Fed. He also struck a crypto-friendly tone, opposing a US central bank digital currency and saying digital assets are already part of the country's financial system. 

The hearing soon became a battle over Fed independence and transparency, with Democrats questioning whether Warsh could stay independent from President Donald Trump's influence and pressing him over claims he could become a political puppet at the central bank. Trump nominated Warsh in March to succeed Jerome Powell, whose current term is due to end on 15 May.  

It's easy to see where concerns about resisting political influence are coming from. Despite having appointed Powell in 2017 during his first term as president, Trump has publicly criticized the central bank chair for not lowering interest rates as much as the president would like. 

The testimony is one of the steps in the confirmation process, and the Senate Banking Committee is now expected to vote on whether to advance his nomination to the full Senate, where he would then need majority support to be confirmed as the next Federal Reserve chair. 

Here are the key takeaways from the hearing, starting with Warsh's attack on the Fed's recent record:  

Pandemic legacy 

Warsh's strongest criticism was aimed at the central bank itself. He said the Fed failed to control the inflation surge that followed the pandemic and that families are still paying for those mistakes through permanently higher prices for essentials such as food, rent and energy. 

"When prices went up to the tune of 25 to 35%... that's an indication that the Fed missed its mark," Warsh told senators, criticising the central bank's handling of inflation in 2021 and 2022, when officials kept interest rates near zero for months after price pressures accelerated. 

He called for what he described as a "regime change" in monetary policy, including a new inflation framework, better use of real-time data and less reliance on forward guidance - where officials signal future rates move in advance. According to Warsh, too much forecasting can leave policymakers defending old assumptions instead of reacting quickly when the economy changes. 

Digital dollar rejected 

Warsh delivered one of the clearest signs of alignment with the White House's pro-digital asset stance, saying the Federal Reserve has no legal authority to issue a central bank digital currency (CBDC) and that doing so would be poor policy. 

"I agree that they don't have the right, and I think it would be a bad policy choice," Warsh said when asked about a US digital dollar. He added that the Fed would not move towards one under his leadership if it were within the chair's power. 

Warsh also acknowledged crypto's growing role in finance, saying digital assets are "already part of the fabric of our financial services industry in the United States." He repeatedly said the Fed should "stay in its lane," a message likely to resonate with digital asset firms that say regulators hindered crypto banking and payment access. 

Not anyone's puppet 

The sharpest exchanges of the hearing focused on whether Warsh could remain independent from Trump if confirmed to lead the Federal Reserve. 

Senators repeatedly pressed him on whether the White House would influence interest-rate decisions or broader monetary policy, reflecting growing concern that political pressure could weigh on the central bank's independence. 

He said neither Donald Trump nor anyone else had asked him to pre-commit to interest-rate cuts or any other monetary-policy decisions, adding that future moves would depend on economic data and deliberation at the Federal Reserve. Warsh also rejected claims that he would serve as Trump's puppet at the central bank. 

Balance sheet on focus 

The Fed has grown too large through years of bond-buying programmes used after the 2008 crisis and during the pandemic, according to Warsh.  "It took us 18 years to create this big balance sheet," he told senators, adding that the Fed should move gradually towards a smaller footprint. 

He said large asset purchases tend to benefit holders of financial assets first, while interest-rate policy reaches the wider economy more evenly, drawing a contrast between the effects of the Fed's main policy tools.