Kevin Warsh walked into his Senate confirmation hearing this week with a reform agenda that reads less like a campaign for the Federal Reserve's top job and more like a reckoning with how the central bank has operated for the past two decades. The former Fed governor, now the front-runner to succeed Jerome Powell, told senators that the institution has "lost its way" and "wandered outside of its remit."
Polymarket traders now put his confirmation odds at roughly 80% by June 30. On The Real Investment Show, RIA Advisors portfolio manager Michael Lebowitz said one quote from the hearing stood out above the rest.
"One of his quotes was so eloquent and so perfect that I don't know why we wasted that many words when we could have just said what he said," Lebowitz said. "QE is reverse Robin Hood. It's policy that steals from the poor to give to the rich."
Warsh's reform pitch covered four areas. The first was economic modelling. He argued the Fed's inflation gauges are broken and should be replaced with measures such as the Cleveland Fed median CPI and the Dallas Fed trimmed mean PCE rather than the headline numbers the institution has leaned on for years. Lance Roberts, CIO at RIA Advisors, noted that the alternative measures all trend meaningfully below 3%, closer to Truflation's 1.7% reading than the official CPI print.
"Bottom line, what they all do in some way or another is throw out the ends — the highest inflation figures and the lowest," Lebowitz said. "Every Fed member will tell you they care more about core CPI than regular CPI. That's what core CPI does. It takes away food and energy."
The second area was public communications. Warsh wants to roll back the forward guidance regime introduced by Alan Greenspan in the early 2000s and expanded by Ben Bernanke. According to Nick Timiraos of the Wall Street Journal, who reported on the hearing, Warsh described the Fed as an institution that is "in the business of politics because of its own choices."
Warsh told senators he prefers "a messier meeting" where "people don't show up with rehearsed scripts" — a direct shot at the current FOMC, whose statements change only at the margin from meeting to meeting. He also criticised the number of Fed officials giving speeches between meetings, which Roberts argued has warped how markets function.
"The markets just literally no longer pay attention to fundamentals. It's just paying attention to what the Fed's going to do," Roberts said. "In 1995, you didn't know who the Fed chairman was. They were in the background. They did their job of managing policy, but they were not front and center in the economy, and they were not basically the face of the stock market."
Whether Warsh can actually deliver those changes is another question. Lebowitz recalled that when Powell was nominated, markets expected a very different Fed because of his private-sector background. Instead, Powell ended up looking like every chair before him.
"What's kind of crippled a lot of the Fed chairs is within their first year, maybe year and a half or two, they're hit with a crisis," Lebowitz said. "All those good things they said get blown apart because they have to react to the crisis and do what they think is necessary. There's incredible political pressure on them to do those things, and then at the end of the day, all the credibility goes away."
Roberts agreed the odds are stacked against reform. "Should we expect something different from Kevin Warsh, or does he wind up being just another Fed chair? If I had to guess, I'd say another Fed chair," he said. Still, the reform pitch itself — delivered on the record and under oath — signals a clearer break with Powell-era policy than markets had priced in before the hearing.