Fed Chair Nominee Kevin Warsh Denies He’d Be Trump’s ‘Sock Puppet’ in Key Role for Mortgage Rates

Federal Reserve chair nominee Kevin Warsh reassured members of Congress on Tuesday that he'd chart his own path on monetary policy in the role, which has major implications for housing and mortgage rates.

President Donald Trump's pick to lead the Fed told the Senate Banking Committee he would respect the independence of the Fed. Responding to Democrats' concerns, he said he would ensure monetary policy "remains strictly independent" of the White House.

"I do not believe independence of monetary policy is threatened when elected individuals state their preference on rates," Warsh said. "Fed independence is at its peak in the conduct of monetary policy."

If the committee approves Warsh, his nomination would then go to the full Senate for approval. Democrats have called for a slowdown of the process because of an ongoing Department of Justice criminal investigation into current chair Jerome Powell, whose term expires May 15.

Crucially, Republican Sen. Thom Tillis has said that he will not vote for any Fed nominee until the DOJ probe into Powell ends, calling it an unacceptable assault on Fed independence. Unless Tillis changes his mind, that leaves Republicans without the votes to advance Warsh's nomination.

'Sock puppet' allegations denied

Warsh was appointed to the Fed board at just 35 under President George W. Bush. His time under then-Chair Ben Bernanke gave him insight into the Fed's actions during the subprime mortgage crisis and the Great Recession.

Democrats are critical of that history. Massachusetts Sen. Elizabeth Warren said Warsh "dismissed, repeatedly and increasingly urgent concerns about subprime mortgages from housing experts."

Warren, the senior Democrat on the committee, also accused Warsh of being beholden to Trump.

"You are his sock puppet," Warren told Warsh. After Warsh declined to name a policy he disagreed with Trump on, she said he lacks the "courage" and "independence" to be chair.

Warsh said he called out concerns about the housing market at the time. But many parts of the economy were overheated, he said.

"I think that part of the housing market was vulnerable for many years and not a lot was done about it," Warsh said.

Later in the hearing, Republican Sen. John Kennedy of Louisiana asked Warsh: "Are you gonna be the president's human sock puppet?"

"Absolutely not," said Warsh. "I'm honored the president nominated me for the position, and I'll be an independent actor if confirmed as chairman of the Federal Reserve."

Housing at the fore of recent debates on rate policy

As chairman of the Fed, Warsh would also sit on the Federal Open Market Committee, which oversees the nation's monetary policy, most importantly by setting the benchmark interest rate.

The Fed uses higher interest rates to fight inflation, and lower rates to boost employment. Although the Fed doesn't directly control mortgage rates, expectations about inflation and Fed policy can influence those rates.

After cutting interest rates three times last fall, the FOMC paused changes to rate policy. It has left the benchmark rate unchanged since December, in a range of 3.5% to 3.75%.

Meanwhile, Trump has made no secret of his desire for dramatically lower interest rates, which would juice the economy and reduce borrowing costs for the government and consumers. In Warsh, the president expects to find a Fed chair more amenable to lowering rates.

Trump has been in a public feud with Powell, whom he has castigated for refusing to lower interest rates further since the president's second term began. In the president's view, inflation has all but disappeared, and higher rates are punishing homebuyers and weighing on the housing market.

But Powell and the majority of the FOMC fear inflation remains stickier than expected. And, the Iran conflict and tariff policies add uncertainty and inflationary pressure into the market.

Political rumble at the Fed

Members of Congress were also critical of Warsh's wealth. The Office of Government Ethics released financial disclosures that revealed Warsh has $100 million in financial holdings. Warsh says he would divest from assets before confirmation.

Powell revealed this year he's subject to a DOJ probe over recent renovations to the Fed's headquarters in Washington, DC. Republicans and Democrats have both called for that investigation to be wrapped up.

And, even if he steps down as chair, Powell has the option to remain on the Board of Governors until 2028. Trump has threatened to fire him if he refuses to step down. A pending Supreme Court case over Trump's attempt to fire another Fed governor, Lisa Cook, will determine Trump's ability to carry out the threat.

Powell says he will stay on the board as a regular voting member until the DOJ investigation, which he called unfounded, is publicly concluded.

Tillis said in the hearing that he wasn't rankled by the ethics issues the Democrats brought up. But he is concerned the Powell investigation is holding up the process. He criticized the Department of Justice and said the investigation must end before he supports Warsh.

"Let's get rid of this investigation so I can support your confirmation," Tillis said.