WASHINGTON—The Senate Banking Committee released transcripts Thursday showing nominee Kevin Warsh faces intensifying pressure to define what interest rates actually are. During a closed-door hearing on inflation and monetary policy, lawmakers repeatedly pressed the former governor on the basic mechanics of banking. The document reveals a growing frustration among senators who suspect the entire financial system relies on a vocabulary that nobody actually understands.
Senator Sherrod Brown: Mr. Warsh, you have stated that you want to raise rates. Can you tell this committee what, specifically, you are raising? Is it a physical dial? Is it a number on a chalkboard?
Kevin Warsh: Senator, we look at the macroeconomic indicators. We adjust the cost of borrowing. It is a lever we pull to cool down the economy.
Senator Brown: But what is the lever attached to? If I go to the Federal Reserve building right now, will I see a lever? Or is this just a vibe you create in the room?
Kevin Warsh: It is more of a systemic vibe, yes. We announce a number, and then everyone in New York gets very quiet and starts typing quickly. We do not actually own any physical rates.
Senator Elizabeth Warren: Mr. Warsh, under your leadership, would the Fed raise rates to five percent? And if so, five percent of what?
Kevin Warsh: Five percent of the total money. The money that is currently circulating. We take five percent of it and we... put it in the back. In the big drawer.
Senator Warren: You put interest in a drawer?
Kevin Warsh: No, the interest is the drawer. The drawer itself is interest. Look, everyone in this room knows that money is not real. We made it up in 1913 so we could buy hats. If we stop talking about the rates, the whole thing dissolves into mist. Please stop asking me these questions. My back is against the wall here.
