Turning up the heat

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NICK EICHER, HOST: It’s Wednesday the 22nd of April.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Nick Eicher.

LINDSAY MAST, HOST: And I’m Lindsay Mast.

Time now for Washington Wednesday, President Donald Trump's pick to lead the Federal Reserve. Former Fed Governor Kevin Warsh was up on Capitol Hill yesterday. He faced the Senate Banking Committee, defending both his economic views and his independence, but his nomination is caught up in a broader fight over the Fed itself and an ongoing Justice Department investigation into current chairman, Jay Powell.

WORLD’s Carolina Lumetta reports.

CAROLINA LUMETTA: Kevin Warsh’s nomination faces two major hurdles: questions over independence, and the future of current Fed Chair Jerome Powell. Warsh on Tuesday defended his record as a governor from 2006 to 2011, during the financial crisis. He also walked the line between promising reforms and independence from the White House.

WARSH: Let me be very clear. Monetary policy independence is essential.

President Donald Trump has publicly fought with current Chair Jerome Powell over interest rates. During the hearing, Massachusetts Senator Elizabeth Warren accused Warsh of being a “sock puppet” for the Trump administration. Warsh pushed back:

WARSH: Monetary policy makers must act in the nation’s interest, their decisions the product of rigor, deliberation, and unclouded decision making… I do not believe that independence of monetary policy is threatened when elected officials state their views on rates.

…something the president often does. He has previously argued that American interest rates should be the lowest in the world. In a phone interview with CNBC on Tuesday, Trump said he would be disappointed if Warsh does not lower interest rates immediately.

Democrats also probed how Warsh is divesting portions of his $100 million wealth. He has been approved by the Office of Government Ethics to pursue the nomination as long as he divests within 90 days.

Meanwhile, Republicans on the committee argued that the Federal Reserve has meddled too much in the U.S. economy. Warsh agreed, saying high inflation is partly due to the Reserve’s past actions.

WARSH: I think that means a regime change in the conduct of policy. I think that means a different, new inflation framework. I look forward to working with my colleagues at the Fed, if confirmed, to achieve that

Warsh needs a majority of the Banking Committee to approve him to head to a Senate floor vote. But not all Republicans are on board with the President’s treatment of Chairman Powell, and that could stall Warsh’s confirmation. In January, the Justice Department subpoenaed Powell as part of a criminal indictment over whether he lied to Congress about funding for a building renovation project. Powell claims the investigation is a political attempt to pressure the Fed. North Carolina Senator Thom Tillis has promised to block any nominee until the administration drops its investigations…but made it clear he’s not against Warsh specifically.

TILLIS: Mr. Warsh, the only thing I’ve found the least bit odd about you is you’ve never watched an episode of Seinfeld [laughter]…I look forward to supporting your nomination, and I look forward to this investigation being taken down…

Powell’s term expires on May 15. If Warsh is not confirmed by then, Powell will stay on as a chair pro tempore until a replacement is confirmed. In a Fox Business interview last week, Trump said if that happens he would fire Powell.

Reporting for WORLD, I’m Carolina Lumetta.

EICHER: Joining us now, Hunter Baker. He’s a political scientist and commentator for WORLD Opinions. Good morning, Hunter.

HUNTER BAKER: Good morning!

So—you heard the report. Kevin Warsh is telling senators he’ll be “strictly independent” and hasn’t promised the president anything on interest rates… even as President Trump is openly calling for lower rates.

At the same time, this nomination is tangled up in that investigation into the current Fed chairman, Jay Powell—and a key Republican says he won’t move forward until that’s resolved.

What do you take from this hearing? And is the president any closer to getting a Federal Reserve chair more to his liking?

BAKER: I don’t know if he’s going to get a Fed chair that he likes, because I think that what he wants is one that he can simply order to lower rates upon command. And that is just not the culture of anybody who would potentially be the Fed chair, there is typically some degree of tension between Presidents and the Fed for exactly this reason, presidents want economic growth, and the easiest way to get economic growth, or at least maybe the fastest, is to reduce interest rates. And so that is, that is always going to be encouraged, you know, reduce interest rates, expand the money supply, but we're in a little bit different period now.

You know, after we had the financial crisis in 2008 the Fed stepped in and sort of saved the economy. Uh, by opening the spigots and reducing rates, I think they reduced them all the way to zero. That really helped in that difficult and frightening period. But that is very much sort of a blunt force, kind of a tool. And then covid happened, and they did it again. And in addition to, you know, really reducing rates in a strong fashion. You have got the Congress massively spending, you know, spending at a shocking rate, and so you've got both the monetary and the fiscal stimulus. And what happened is, we got a big time inflation out of that. I mean, none of us have really recovered from that jump in prices that occurred in that immediate kind of post covid period.

So anybody who becomes the Fed chairman, yes, they're going to be looking at whether they can, you know, cut rates and try to stimulate the economy and achieve that full employment type of mandate that they have, but the other mandate is to control inflation. And so anybody who takes over at this moment has to look at inflation. We are still not down to the sort of traditional 2% inflation that has been their target for quite some time. And so it's not that easy just to jump in and cut rates.

EICHER: I want to ask you about the Thom Tillis situation. Senator Tillis from North Carolina, he is not running for re election, so he's kind of become hostile to President Trump. He's stepping in, and he's saying, until this Jerome Powell investigation is resolved, nobody's getting confirmed, I will stand in the way. That seems a bit unusual, almost conditioning a vote on something happening with an investigation. It's borderline improper, isn't it?

BAKER: It's definitely unusual, especially because Tillis actually and he's been clear about this, he supports Kevin Warsh as the nominee. He's very clear. Warsh is highly qualified. He is ready to vote for him, but he is using this opportunity that he could threaten to vote against him as a way to stop this criminal inquiry into Jay Powell's conduct as the head of the Fed. Now, let me say this. It is strange. I mean, the amount of money that they have spent on that fed building is, in my mind, shocking, truly a shocking I think I've heard like, $3 billion on that facility,

EICHER: Two and a half billion, yeah, but it's still a lot.

BAKER: It's incredible, two to 3 billion, something like that. And so, you know, people have raised questions. And you know, Trump, I think trying to put pressure on Powell has pushed this idea of there's going to be some sort of criminal inquiry, and Tillis just does not like it, and so he's kind of pushing back through this nomination. I'm just going to tell you, this is too big of a thing to be captured by this sort of battle between Tillis and Trump. I'm going to predict right now. They're going to work it out. They're going to work it out, and Warsh is going to be confirmed in a timely way, because that is what the establishment is ready to happen. That's what Wall Street is ready to happen, and it's going to happen.

MAST: Well, let's turn now to Virginia. Last night was the voting deadline there on whether to approve a gerrymandered congressional map as drawn up, the new map would leave Democrats with as many as 10 of the 11 House seats Virginia gets, but it's part of a broader coast to coast redistricting fight between the parties ahead of the midterms.

Hunter, what do you think of the vote?

BAKER: I think that this is really a terrible outcome. I think that anything that encourages more of this redrawing and constant re engineering of the map is very bad for our political culture. It seems to me that both parties are now and, you know, Trump, I think, has kind of started it in this last round, but both parties are now kind of trying to squeeze every bit of juice out of that electoral map that they can, and it's just terrible, because what you're doing is you're disenfranchising large numbers of people in each state, and you're making the districts less competitive. And when that happens, then the parties become more extreme, less likely to work together, and it's just poisonous. I saw redistricting occurring in the state of Georgia back around the year 2000 and it was one of the more poisonous and acidic episodes that I've ever observed, and the idea that we're going to do more of it instead of less of it, and that we're not going to wait for the 10 year breaks between the census, but instead that any year is potentially a year to do it. I think it's terrible.

EICHER: All right, Hunter, let's wrap up with a quick look at the early Senate map, the latest campaign finance filing. Things we look to Texas Democrat James Tallarico is the top Senate fundraiser in the country so far this cycle, bringing in more than $27 million that's happening even as Republicans are still kind of tied up in a primary runoff. So do you take that as a signal that Texas could be competitive, or is it just early enthusiasm that doesn't necessarily translate into votes?

BAKER: It's always impressive when you can raise a lot of money. It is incredible how much money dictates in American politics. Nevertheless, the fact that James Talarico has raised, you know, $27 million already, even though he is a person who is not particularly accomplished in politics, does not indicate to me that he has a great chance of winning this contest. And that's I say, that even with the fact that there are polls, you can find polls that show him ahead of Cornyn or Paxton. But I just can't believe it. I'm going from the gut here. I'm telling you that when I think about a guy who has said trans people need abortions too, and who is just extraordinarily heterodox when it comes to the Christian faith, I find it hard to believe that he's going to be able to win, even with a boatload of money. I just think that the opposition research is going to overcome him. Having said that there is such a thing as a wave election, 2006 was a wave election. Americans were incredibly frustrated with how things were going in Iraq and Afghanistan, and I mean, a lot of Republicans got buried in that year. If we end up struggling in Iran, if gas prices stay high into the fall, and if it looks like there's no way out, then we could end up with a wave election with people just expressing their frustration at the ballot box. If something like that happens, then maybe James Tallarico can win. But other than that, I'm saying that he has no chance.

MAST: When you look across these filings, not just Texas, what do they tell you about the political environment heading into the midterms?

BAKER: I mean, I think that the Democrats know that they have the wind at their backs. I mean, Barack Obama won in 2008 about as impressively as you can win, and he still got hosed in the midterms at 2010 it's just a dynamic in American politics that voters tend to react against those newly elected presidents in that midterm, and I don't know if it's because the nature of the electorate is different. I mean, one thing that used to happen to Democrats is that their voters would show up to vote for a president, but not as much at the midterms. Some people think that the Republicans are starting to fill that role, that that Republicans will show up to vote for Donald Trump, but then they won't show up in other elections. So we're just going to see who has more intensity when it comes to actually showing up to vote.

EICHER: Hunter Baker is Provost at North Greenville University and a WORLD Opinions commentator. Hunter, thank you.

BAKER: Thank you.

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