Sen. Elizabeth Warren attacked Federal Reserve Chairman Kevin Warsh during his testimony before Congress on Wednesday, with the Massachusetts Democrat accusing the top central banker of corruption.
As Warsh appeared before the Senate Banking Committee in his second day of congressional testimony, Warren laid out a history of ethical breaches by top officials at the Federal Reserve.
“Instead of trying to repair this broken culture, I’m concerned that you seem to be embracing it,” Warren said, noting Warsh’s divestment of more than $100 million in assets, which the chairman has said he fully sold or was in the process of selling before taking the helm.
“You say now that you’ve sold those shares. In other words, somebody wrote you a check for more than $100 million days before you entered office. Chair Warsh, who wrote that check?” Warren pressed.
As Warsh started to respond that he has fully honored obligations from the Office of Government Ethics, Warren jumped in.
“I asked you a very specific question. Who gave you $100 million right before you were sworn in? Was it a billionaire who has businesses with the Fed? Was it Stanley Druckenmiller, who’s made billions of dollars betting on what the Fed does?” she asked.
When Warsh started to repeat that he has complied with all legal requirements, Warren exclaimed: “That’s not an answer!”
“Well, it is an answer, actually, senator,” Warsh replied.
Warren also grilled Warsh about a Wall Street Journal report that Michelle Bowman, the Fed’s vice chair of supervision, spoke at an invite-only Bank of America dinner last month during a blackout period, which bars central bankers from speaking about monetary policy publicly.
Warsh said he plans to leave the matter to the Fed’s Office of Inspector General. Warren has called on the office to investigate Bowman.
“I wasn’t at the meeting, I don’t know the facts,” Warsh said Wednesday.
Warren replied: “Did you ask her? Did you care enough to ask? How can you be chair and not ask your vice chair whether or not she violated the blackout period, violated the law?”
Warsh replied that he thought it would be inappropriate to “pre-judge facts.”
The questioning quickly devolved into a heated back-and-forth, with Warren asking three times in a row whether Warsh asked Bowman about the alleged meeting.
“Yeah, I think that’s one more question you don’t want to answer! I got to say, the tone that you are setting is one that seems to invite corruption and that’s gonna be a real problem.”
Warren also accused Warsh of being in President Trump’s “pocket,” since the president repeatedly said he would only nominate a chairman who promised to lower interest rates – though Warsh held rates flat at the central bank’s meeting last month.
Later in the hearing, Republican Sen. Mike Rounds of South Dakota gave Warsh time to respond to some of the accusations.
“I think you’ve been basically harassed a little bit in terms of making accusations to you. Let me give you just a minute to perhaps respond in just a straightforward manner. Did anybody give you $100 million?” Rounds asked.
“No,” Warsh replied.
During his testimony, Warsh emphasized the huge impact of artificial intelligence, calling it the most “consequential change to the US and global economy in my adult lifetime.”
Warsh said AI is “not without challenges,” but that he believes the US is in the best position worldwide to benefit from the new tech.
“In the long-term, my best guess is that this will improve American productivity and will improve the real wages and will help us on full employment,” Warsh said. “But between the short-term and the long-term, it can have a disruptive effect.”
He specifically warned that AI will likely raise prices over the next 12 months, but that he does not view this as “inflationary” since it is just a one-time change that will balance once supply catches up.
During his testimony Monday in front of the House Financial Services Committee, Warsh also emphasized the Fed’s commitment to bringing down inflation and prices.
Though he declined to share forward guidance on the path of interest rates, his hawkish, anti-inflation stance typically indicates a bias toward raising rates, not cutting them.