The committee reacts to Kevin Warsh's testimony

[0:00] Let's get a quick check of the markets at this hour. A lot of red on this board right now. You [0:04] can see the Dow is pulling back fractionally, the S&P and the Nasdaq pulling back right around a [0:07] quarter of one percent. The Russell down almost a half a percent. This says oil prices have moved [0:11] to the upside over the last few hours, looking at WTI up over four percent higher right now. [0:16] Right now, we also want to turn things over to our senior economics reporter, Steve Leisman, [0:20] with the highlights from Kevin Warsh's hearing on Capitol Hill. Steve, [0:24] want to get your take on what you heard and what you saw. [0:26] Yeah, he underwent pretty sharp questioning about potential conflicts of interest out there [0:32] as well as his vast, from his vast holdings and whether he had promised to President Trump to [0:37] lower interest rates. On the first question, Warsh said he will sell virtually all his financial [0:42] assets that amounted to the hundreds of millions. But Senator Warren and other Democrats expressed [0:47] concern that it would never be disclosed what was in several financial vehicles worth hundreds [0:52] of millions of dollars that could contain conflicts, while Warsh has ultimately not, [0:57] he said he wouldn't disclose them, he said he would sell them. [1:02] I have worked tirelessly with the ethics officials at the Office of Government. [1:06] Yes, and you have not revealed $100 million in assets. [1:09] And have agreed, Senator, to sell all of my financial assets, [1:14] Mr. Warsh, are you refusing to tell us if you have investments, for example, in vehicles set up [1:23] to advance Jeffrey Epstein? Is that what you're telling us? You just won't tell us? [1:27] Senator, what I'm telling you is that those assets that you represent as juggernaut will be sold [1:33] if I'm confirmed before I take office and sign the oath of office? [1:39] On a separate issue, Warsh insisted that President Trump had not asked him to lower rates [1:42] and he had never agreed to do so. There was pushback from one senator who cited a Wall Street [1:47] Journal interview where the president appeared to say Warsh told him that he thought rates should [1:51] be lower. Quite a different thing in my mind anyway. Warsh called for regime change at the Fed, [1:56] including a smaller balance sheet that would allow for rates to be lower. He repeated several [2:00] criticisms of the Powell Fed, including policy errors that he said led to the inflation. [2:04] that followed the pandemic. And Warsh was generally upbeat about technology and the potential [2:08] of the economy to boot for higher potential growth. And while Warsh received strong GOP support, [2:14] remember his nomination not expected to go forward because Senator Tom Tillis repeating today [2:20] his intention to hold up the nomination while there's still a criminal investigation into Fed Chair [2:25] Powell. And just one more thing, Frank, if you look at interest rates, they actually drifted a little [2:30] higher while Warsh was talking. And the probability of a rate cut, any rate cut this year is down to [2:36] just 30 percent, Frank. You know, Steve, to your point, the two-year and the 10-year both moving a [2:41] few basis points higher. I want to go back to what seemed to kind of be the elephant in the room. [2:44] President Trump on CNBC earlier today saying that he would like to see rate cuts as soon as possible, [2:50] if and when. Kevin Warsh has confirmed. Kevin Warsh himself, he really focused on Fed independence. [2:55] Do you feel like he answered the questions, whether they were direct or indirect about the [2:59] president's influence on his decisions? I think it depends on if you're a Democrat or [3:05] you're a Republican, Frank. I'm sorry to say. I personally did not read the Wall Street Journal [3:11] article as Kevin Warsh promising to lower interest rates. I thought it was interesting that there was [3:18] a hypothetical given to Warsh that said, well, look, if you lower rates to 1 percent, won't that cause [3:24] inflation? And he refused to answer that. Warsh did do quite a dance to make sure he was not [3:28] criticizing the president or anything he said. I thought, Frank, that he understated the challenge [3:34] that the president has meant to the Federal Reserve. In his opening statement, Warsh said that [3:39] it's OK for elected officials to make comments and express their preference for interest rates. Of [3:44] course, President Trump has not done that. President Trump has gone much, much further. [3:48] He's lambasted the Fed, lambasted Powell. He has fired Lisa Cook, the Fed governor. He's threatened [3:55] to fire Powell. So I thought Warsh went out of his way to make sure he was not critical of President [4:00] Trump. But I also think it's a long way to say that he promised the president he would lower [4:05] interest rates. All right. Steve Leesman, senior economics reporter. Steve, thank you so much for [4:09] your insight and analysis on a big day like this. We also, of course, have the investment committee [4:13] here. Joining me for the hour, we have Joe Terranova, Jason Snipe, Rob Siechen and Josh [4:19] Brown. A lot to parse, a lot to break down. Joe, I'm going to start with you. We were talking about [4:22] Kevin Warsh and his independence yesterday after Steve brought us his opening statements and [4:27] pre-prepared remarks. What did you make of what he had to say? Do you think anybody who is concerned [4:32] about Fed independence, do you think those fears have been calmed after this? So I don't think anything [4:38] about Kevin Warsh is related to his qualifications. I think everyone understands he's more than [4:44] qualified. He is disruptive, which where the Federal Reserve is today in 2026, I think is a needed [4:52] dynamic. I think if I'm in President Trump's administration and for the president himself, [4:57] they're watching this testimony today. And there has to be a way that they pursue the transparency [5:04] that they claim to be seeking in a criminal case against Chairman Powell without going to that [5:12] degree and therefore allowing the Senate to confirm Kevin. To me, that gets you to where everyone [5:19] ultimately, including the administration, is in the best place. Kevin Warsh is the Federal Reserve [5:25] chairman. And the only way you get there, the only way you get there is by removing that criminal [5:31] court impediment that's in front of us. I think today, to your question, he did an adequate job, [5:38] a job that he needed to, addressing the fact that he is an independent thinker and that in fact, [5:44] he will move forward with monetary policy, rather, regardless of what the administration's wishes [5:50] would be. And I think the bond market is validating that perspective because yields are ticking [5:55] modestly higher. All right, Josh, I want to come over to you and get your take. Very important to note, [5:59] the markets did move lower after the test. The hearing began. However, oil prices also moved [6:04] higher. Some thought is that as we're nearing the end of the ceasefire deadline, that puts some [6:08] pressure on the oil market, which also puts some pressure on the overall stock market. But Josh, [6:12] I do want to get your take on what you heard and what you saw. Yeah, I think that there's no surprise [6:19] in here at all. I think he will be confirmed. I think everyone knew he would be confirmed. I'm not sure [6:24] that there's any sort of read through into any specific part of the curve that's worth pointing out. [6:30] I just think the bond market has understood for a very long time that this would be the next phase [6:36] in Fed governance. And we're already sort of looking past it. I think the more interesting [6:42] things happening, I agree with you guys, are happening in the commodities, specifically oil. [6:48] That really has nothing to do with the Fed. The Fed can't lift or drop the price of oil. They can't [6:54] jawbone it. They can't move it around with their feelings. And that's really been a much bigger [7:01] factor in the push and pull for stocks over the last, let's call it four to five weeks. [7:07] C.J., I want to come over to you. He mentioned regime change at the Fed, things like changing [7:10] when the summer of economic projections is put out or compiled. Lowering the balance sheet says [7:17] the Fed shouldn't hold long-term treasuries. Any thoughts in your mind about what he said and how it [7:20] could impact the financial markets? Well, he certainly had a tightrope to walk. I mean, [7:26] Trump was watching this, no doubt. He wants rate cuts come hell or high water. And, you know, [7:32] Kevin has to convince the majority of his fellow committee members on any policy, [7:39] any possible policy change. And, you know, he probably came under fire. I know we didn't get [7:46] to hear the early parts of that because we were getting ready for the show. But the reality of it [7:52] is he went from a policy during the global financial crisis of advocating for higher rates [7:58] to a policy on possibly reducing rates when the data supports it. I think he came across about as well [8:07] as he could to all the constituent audiences, including the Republicans, who want to see [8:14] deficit reduction. So, listen, I don't know that he could have done any better. He certainly presents [8:20] well. He's incredibly articulate. He has the background to do this. And I have no doubt that [8:26] he will get confirmed. It's just a matter of time frame. Yeah, I don't think his qualifications are [8:32] under any type of question. I think everybody agrees there's a consensus. He has qualified for the [8:36] role. But, Jason, I want to come back over to you and ask you the same question about his [8:39] independence. I don't think the president did him a lot of favors on CNBC, on Squawk Box earlier [8:43] today. Just kind of putting a shadow over this. Your thoughts on his independence and how the [8:47] market's receiving on this. No doubt about it. I mean, it was a tough needle to thread without a [8:51] doubt. No surprises for me in terms of the commentary. I think he did it. I think, to Seach's point, [8:59] I think he did as well of a job as he possibly could focusing on the independence, focusing on the [9:03] dual mandate, and focusing on labor. I mean, there's been a lot of talk, obviously, on rates [9:09] and where we're going on forward. And obviously, the market is kind of playing into that narrative [9:14] as well. But I think he handled it well. And clearly, he will be the new Fed chair. So [9:21] no surprises here. And I think we'll kind of see how things evolve once he gets in the seat. [9:27] So, Joe, pick your metaphor. Threading a needle, walking a tightrope. It was kind of a dance he had to do [9:31] right here. One thing he did say, though, is that rate cuts would help a broader range of people. [9:36] I'm paraphrasing. It's paraphrasing. It's not a quote. But he did say rate cuts would help a [9:40] broader range of people. It seemed like he was kind of alluding to people on the lower end of [9:43] the economic spectrum. The fact that he said that rate cuts would help, is that dovish in your mind? [9:49] Is that just an actual analytical take on what's going on in the economy? How did you take that part? [9:53] I think that's an analytical understanding that we need to lift up a large part of society that has [10:01] not joined along in this K-shaped economy that we've all spoken about. We've kind of forgotten [10:08] the people that are have-nots in the 2026 economy. So I think that addresses, and hopefully it's in [10:15] action, not just in words. The offset to that was what we heard regarding his thoughts on the balance [10:21] sheet, which maybe indicate at times of stress for financial markets, we're not going to be able [10:28] to look towards the Federal Reserve to type of to get the type of support that we have received in the [10:33] past. The question, though, is not will it help. It will. The question is when to do it, because you [10:41] don't want to make this worse. There's certainly a risk, if you cut now, in the midst of everything [10:47] that's going on of de-anchoring what is long-term inflation expectations. So there's this perfect [10:55] time. And again, he's walking a tightrope. Then the entire Fed is walking a tightrope. Until we can [11:01] get inflation expectations to stay low, you cannot deal with issues in the labor market and issues [11:09] in income inequality until that happens, because you're going to compound the problem [11:15] prospectively if you do it too early. Josh, can you jump in for one last comment? [11:20] I totally agree. Yeah, I very much agree with what Rob is saying. You know, we don't even know [11:27] for sure that low versus high interest rates are good or bad because we have such a bifurcated [11:34] consumer. One of the things that I was saying a couple of years ago was that actually, perversely, [11:40] high interest rates turned out to have been a stimulus program for the top 10% of households [11:47] who had cash that was literally spitting out more cash into their accounts. It actually produced [11:54] a wealth effect for people who were taking no risk whatsoever. Older people, people with huge cash [12:01] balances, people that don't have mortgages, people without debt. All of a sudden, they were earning [12:07] 5, 5.25% on their cash, something that they hadn't seen in a generation. And that feeling of being [12:14] even more wealthy probably helped fuel even more inflation, especially if you're looking at housing [12:21] in some of the top cities in the country, the prices for apartments, for condos. So even if we keep [12:28] rates high, it's not a guarantee that that will stop economic activity. And to Rob's point, even if we drop [12:36] rates, that's not necessarily going to benefit the people who are struggling if it screws up the [12:42] longer-term inflation expectations. So I think that Warsh talking about being nimble and using better [12:50] data is actually the important part. Because just when you think you know what to do with rates, [12:56] the economy could throw a curveball. You say, oh, wait a minute, that's how this works? And I think [13:01] the Fed was late to figuring this thing out.