Woz nomination hit with a "heavy blow," senator's open letter exposes the scars! The path to appointment faces further uncertainties

Huitong Finance APP News—— U.S. Senator Elizabeth Warren sent a sharply worded open letter on Thursday (March 26) to Federal Reserve Chair nominee Kevin Warsh, accusing him of having “learned nothing from failure” during his tenure as a Fed governor from 2006 to 2011 and predicting that if confirmed, he would become a rubber stamp for Trump’s “Wall Street First” agenda.

Warren sharply criticized Warsh’s performance during the 2008-2009 financial crisis and the “Great Recession,” arguing that his record should disqualify him from promotion.

Warren stated at the beginning of the letter: “I am writing this letter to better understand whether you ever learned any lessons from failing to prioritize American families over Wall Street during your time as a Federal Reserve governor, before, during, and after the 2008 financial crisis.”

She accused Warsh of ignoring Wall Street’s evident excessive risk-taking on the eve of the subprime crisis, actively pushing for bailouts of large financial institutions after the crisis erupted, and opposing stronger regulations to prevent the failure of large banks and taxpayer bailouts post-crisis.

Warren wrote: “You not only failed to implement policies that would improve the lives of the American public, but you also ignored Wall Street’s obvious excessive risk-taking; went to great lengths to bail out those large financial institutions that detonated the economy; and advocated for policies that would further harm millions of Americans who lost their jobs, were evicted from their homes, and saw their life savings evaporate.”

Warsh’s Record at the Federal Reserve from 2006 to 2011

Warren specifically pointed out that Warsh still believed in December 2007 that “subprime lending had a bad reputation in the current environment” and promoted “financial innovations” like derivatives as tools to diversify risk.

She wrote in her letter: “It is shocking that during the crisis, you seemed to prioritize the interests of large financial institutions over the American public.” Warren also mentioned that Warsh served as an M&A executive at Morgan Stanley for seven years before joining the Fed and actively participated in several large-scale bailout actions during the crisis, even receiving ethical waivers to handle matters related to Morgan Stanley directly.

Additionally, Warsh advocated for raising interest rates at that time, which further exacerbated the already struggling economy.

Warsh’s Position After Leaving the Federal Reserve

Warren criticized Warsh for continuing to advocate against stronger regulations after leaving the Federal Reserve, trying to prevent the failure of large banks and taxpayer bailouts.

She believes that Warsh’s overall record shows repeated failures in assessing the impact of inflation on the U.S. economy, stating, “It seems you learned nothing from failure.”

Nomination Process and Political Background

Warsh’s nomination is currently at a standstill. Republican member of the Senate Banking Committee Tom Tillis stated that he would block the nomination from entering the full Senate for a vote until the criminal investigation into current Fed Chair Jerome Powell concludes.

Washington D.C. Attorney General Jeanette Pirro has stated that she will not abandon the investigation into Powell, which primarily concerns the cost overrun of the Fed’s headquarters renovation project. Trump has repeatedly pressured Powell and the Federal Reserve to accelerate interest rate cuts.

Powell previously stated that if Warsh is not confirmed before his chairman term ends in May, he would remain as acting chair.

Current Probability of the Fed Keeping Rates Unchanged in April is 93.8%

According to CME data, the market expects a 93.8% probability that the Federal Reserve will keep interest rates unchanged at the April meeting, with the probability of a 25 basis point increase dropping to 6.2%. Compared to the previous day, the expectation for rate hikes has slightly increased. For the June meeting, the cumulative probability of a 25 basis point increase is 19.9%, and the cumulative probability of a 50 basis point increase is 1.0%, while the probability of keeping rates unchanged is 79.2%.

Recent tensions in the Middle East continue, but the U.S. claims negotiations are still ongoing, while Iran states it is still considering the 15-point ceasefire proposal. Oil prices are fluctuating, and the market’s pricing of the Federal Reserve’s policy path is being adjusted accordingly. Future developments and key economic data will need to be closely monitored.

Market Outlook and Risks

Warren’s open letter further exacerbates the partisan resistance faced by Warsh’s nomination. The Senate Banking Committee confirmation hearing is expected to revolve around intense debates regarding his performance during the 2008 financial crisis.

If Warsh is ultimately confirmed, his policy inclinations may lean more toward supporting Trump’s “Wall Street First” agenda, which could have far-reaching implications for the independence of the Federal Reserve and the future direction of monetary policy. The market will closely watch the nomination process, the content of the hearings, and potential political maneuvering outcomes.

(Edited by: Wang Zhiqiang HF013)

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