‘Who Wrote That Check?’

Federal Reserve Chair Kevin Warsh sold more than $100 million in assets days before he took office, as required by ethics rules. At the Senate Banking Committee on Wednesday, he declined to say who bought them.

Warsh held stakes in the Juggernaut Fund and THSDFS LLC, whose underlying assets he declined to disclose to the Senate at his confirmation. Asked who had bought them, he said he had honored his agreement with the Office of Government Ethics and would comply fully. Sen. Elizabeth Warren (D-MA), the committee’s ranking member, pressed for a name. She asked whether it was Stanley Druckenmiller, the investor whose Duquesne Family Office Warsh joined after resigning from the Fed in 2011 and whose firm manages the Juggernaut Fund, or a different billionaire. Warren did not say Druckenmiller was the buyer, and Warsh did not name one. Warren said that was not an answer. Warsh said it was.

Warren then turned to Michelle Bowman, the Fed’s vice chair for supervision and its most senior bank regulator. The Wall Street Journal reported that Bowman attended a private dinner hosted by Bank of America on June 17, hours after the Fed’s policy meeting ended, and discussed interest rates. Fed officials are barred from publicly discussing monetary policy for roughly two weeks around each meeting, a window that closes the day after it concludes. Warren, with Sens. Jack Reed (D-RI) and Chris Van Hollen (D-MD), has asked the Fed’s inspector general, Michael Horowitz, to review whether Bowman’s attendance or comments broke any rule, and whether the Fed’s framework for such events should be strengthened. Bowman has said she did not share her views on monetary policy and has complied with FOMC and ethics rules.

Warren’s question to Warsh was narrower than whether Bowman had done it. She asked whether he had asked her. Warsh said he would leave the matter to Horowitz without trying to micromanage it. “Did you care enough to ask?” Warren said, and asked how he could be chair without asking his own vice chair whether she had violated the blackout period. Warsh said it would be inappropriate to prejudge facts being discovered by an independent actor. Warren asked how he could prejudge them without asking. As chair, she told him, he sets the tone on culture.

Sen. Mike Rounds (R-SD) came to his defense, telling Warsh he had been harassed and offering him a minute to answer plainly whether anybody had given him $100 million. Warsh said he had fully complied with the law and that all trading was conducted legitimately under it. Creating a culture of integrity at the Fed, he said, was his personal responsibility. Rounds said staying hands-off on Bowman seemed appropriate.

Sen. John Kennedy (R-LA) asked Warsh what causes inflation. Warsh said monetary policy. Kennedy said it was AI and the war in Iran.

Warsh has put it more strongly elsewhere. At his confirmation hearing and again before the House on Tuesday, he called inflation a “choice” on the Fed’s part. Under that view, the gas price is not inflation. Consumer prices fell 0.4% in June, almost entirely because gasoline prices fell after an interim agreement in the Iran war allowed tankers back through the Strait of Hormuz. By Monday, the ceasefire had collapsed, and Brent crude had risen 4.7% to $79.59 a barrel. Neither the fall nor the reversal is a choice the Fed made. That is a recognizable monetarist position rather than an evasion, since energy swings are relative price changes rather than inflation. The chairman claims neither credit for June's improvement nor responsibility for this week's deterioration. The only cause he names is monetary policy, and he will not say what the Fed intends to do with it.

Asked by Reed whether AI is creating inflation, Warsh said the demand shock is a one-time event that will not create sustained pressure, and that the supply side will eventually respond with the productivity AI provides, which would be disinflationary. A day earlier, in testimony to the House, he had said the Fed was monitoring the implications of the AI buildout for inflation and jobs.

Several Democrats questioned who Warsh has put in charge of studying how AI will affect jobs. The Fed’s task force on productivity and jobs is co-led by Marc Andreessen, the venture capitalist; Charles Jones, a Stanford economist currently on leave at the AI firm Anthropic; and Asha Sharma, an executive vice president at Microsoft and chief executive of Xbox. Sen. Tina Smith (D-MN) objected to asking people invested in AI what AI will do to employment, and Sen. Lisa Blunt Rochester (D-DE) raised the same concern. Warsh said the panel offers guidance and holds no decision-making power. The Fed had not outsourced the decision to three people, he said. It had outsourced the thinking.

Sen. Raphael Warnock (D-GA) and Sen. Andy Kim (D-NJ) asked whether weak profits at AI companies could signal a bust. Warsh said earnings are rising, and that much of the investment has gone into energy and components, which would not be wasted if AI disappoints. Asked by Sen. Mark Warner (D-VA) whether AI would put recent college graduates out of work, Warsh said graduates have grown up with the technology and would be skilled at using it.

Wednesday completed Warsh’s first semiannual monetary policy report to Congress, less than two months after the Senate confirmed him 51-45. The Federal Open Market Committee meets on July 28 and 29. The inflation gauge the Fed targets does not report June until July 30.

This report includes material from The Hill, CNN, the Associated Press and Reuters, and from the Federal Reserve’s published testimony, Senate Banking Committee records, and Bureau of Economic Analysis data.