Translation result.
At a Senate Banking Committee hearing, Republican Sen. Kennedy asked Federal Reserve nominee Kevin Warsh, “Will you be the president’s sock puppet?” Warsh answered firmly, “Absolutely not.”
The question itself became the story. Democratic Sen. Warren had already labeled Warsh as Trump’s sock puppet, and Sen. Kennedy quoted that label directly to press for confirmation. The scene stood in stark contrast to 2006, when Warsh won bipartisan support for his confirmation as a Fed governor.
The two-and-a-half-hour hearing unfolded under political tension from start to finish. At the center of that tension was one question: can Warsh serve as an independent Fed chair, or will he yield to Trump’s pressure to cut rates?
The cryptocurrency market is watching that question closely. Who runs the Fed will shape the dollar’s path, and the dollar’s path changes bitcoin’s macro backdrop. A Warsh-led Fed would likely be less predictable than Powell’s, and that very uncertainty is the variable markets are trying to price in now.
■ Did Trump get a promise on rate cuts?
The hearing’s hottest moment came when Democratic Rep. Ruben Gallego demanded sworn confirmation that the president never asked Warsh to promise rate cuts in advance. Warsh confirmed he had no such promise. Gallego replied, “Then either you are lying, or Trump is lying,” directly targeting a Wall Street Journal report from last December that said Warsh promised Trump rate cuts in exchange for his nomination.
Warsh held his ground. “Those reporters need better sources,” he said. “The president asked me for nothing, and I will not make such a promise.”
When Sen. Reed asked about the Fed’s independence, Warsh gave a nuanced reply. He said elected officials, including the president, can voice opinions about interest rates without threatening the Fed’s operational independence. He emphasized that operational independence is something the Fed must safeguard itself.
He walked a tightrope, avoiding direct criticism of Trump while asserting his independence. How far that tightrope will hold becomes clear only after he assumes the chair.
■ Warsh’s vision for the Fed: three priorities
Between the political sparring, Warsh outlined his plan.
First: prioritize interest rates and shrink the balance sheet. Warsh repeatedly stressed that interest rates should be the primary tool of monetary policy. He argued that expanding the balance sheet through quantitative easing tends to produce distributional effects favoring the wealthy, while interest-rate policy affects all economic actors. He did not specify a target balance-sheet size, but he said the Fed should not hold long-term assets and effectively function as a fiscal authority.
For the crypto market, that point matters. As a recent 21Shares report noted, bitcoin has a structural correlation with Fed balance-sheet expansion. Bitcoin emerged soon after the Fed’s first QE in 2008, and demand for bitcoin has strengthened each time QE recurred. If Warsh accelerates balance-sheet reduction, that structural link could become a short-term headwind.
Second: reform the inflation framework. Warsh strongly criticized the Fed’s 2020 switch to flexible average inflation targeting (FAIT). “We wanted a bit more inflation and got a lot more, and we’re still paying the price,” he said. He proposed developing a new inflation indicator as his first reform. His simple definition of price stability: a situation in which no one talks about prices.
Third: change how the Fed communicates. Warsh criticized the Fed’s culture of unanimous decisions and its overuse of forward guidance. He said he wants humble, agile, open central bankers and a culture that welcomes dissent—a healthy family fight. That language signals a clear break from the Powell era and suggests a Fed that will be less market-friendly.
■ Could AI justify rate cuts?
An unexpected topic surfaced at the hearing: could AI provide a basis for cutting interest rates?
Warsh argued that AI’s supply-side effects could outpace any demand boost. If AI raises productivity, growth could occur without inflationary pressure, creating room for rate cuts. The question arose in the context of remarks that Trump wants rates down to 1% in 2026.
Sen. Van Hollen expressed skepticism, asking whether AI’s effects could materialize fast enough to justify a 1% rate by 2026. Warsh avoided a direct answer.
In crypto markets, that debate creates two scenarios. If AI’s supply gains arrive quickly, the Fed could cut rates and liquidity would increase—historically a tailwind for bitcoin and other risk assets. If AI falls short of expectations, inflation could persist and rates would remain high, recreating a macro environment similar to 2022.
■ The May 15 deadline
Washington’s clock is focused on one date: May 15, the day Powell’s term as Fed chair expires.
The key swing vote is Republican Sen. Tillis. He has said he will not move to a Warsh confirmation vote until the Department of Justice ends its investigation into Powell. Tillis did agree to replace a DOJ probe with a congressional investigation, but Trump rejected that option.
If the deadlock continues, Warsh may not secure confirmation before May 15. Powell wants to remain as acting chair, but the Trump administration opposes that. A vacancy in the Fed chair could become a reality.
A vacant Fed chair would introduce immediate uncertainty for the dollar and financial markets. Bitcoin tends to react in two ways to that kind of uncertainty: if expectations for a weaker dollar grow, bitcoin can face upward pressure; if risk-off sentiment rises broadly, bitcoin can face downward pressure. Volatility will come before a clear directional move.
■ What Korean investors should watch
Warsh’s hearing matters beyond U.S. politics. It connects directly to Korean markets in three ways.
First, the won–dollar exchange rate. Warsh’s balance-sheet reduction and a tougher inflation framework would support a stronger dollar. In a market where the won–dollar rate already surpassed 1,500 KRW per USD (approximately $1.13), a Warsh-led Fed could add further pressure on the won. Bank of Korea Governor Shin Hyun-song’s call for prudent and flexible monetary policy shows he already sees this variable.
Second, bitcoin’s macro environment. A change in Fed leadership signals a shift in monetary policy direction. If Warsh speeds up balance-sheet reduction, liquidity would tighten; if the AI argument leads to rapid rate cuts, liquidity would expand. Those two scenarios push bitcoin in opposite directions. Until policy direction becomes clear, heightened volatility is unavoidable.
Third, the link to the CLARITY Act. Warsh stressed that the Fed should stay in its lane, and crypto regulation lies outside that lane. Markets could read that as a sign the Fed will not intervene in CLARITY Act discussions, concentrating regulatory leadership with the SEC, the CFTC, and Congress.
■ Uncertainty as policy
Warsh wants a humble, agile Fed—one that avoids signaling policy moves well in advance and that allows public clashes of opinion.
That approach makes markets uncomfortable. Under Powell, markets grew used to forward guidance and could anticipate parts of the next meeting’s decisions. A Warsh-led Fed would reduce that predictability.
The crypto market has always been sensitive to uncertainty. At the same time, uncertainty underpins bitcoin’s core value proposition: the less predictable central banks become, the stronger the case for assets that don’t rely on them.
Bitcoin was born just after the Fed’s first round of quantitative easing in 2009. If Warsh seeks to roll back that QE legacy, how bitcoin responds will serve as another test of this asset’s fundamental nature.
There isn’t much time left before May 15.
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