Washington (CNN) — Federal Reserve Chairman Kevin Warsh faced intense grilling Wednesday from Democratic Sen. Elizabeth Warren, who demanded to know whether he had questioned a colleague about reports that she attended a meeting with bankers last month that may have violated Fed rules, fueling a heated exchange about ethics.
The senator asked Warsh repeatedly during his second day of monetary policy testimony on Capitol Hill if he had asked Fed Vice Chair for Supervision Michelle Bowman whether she had attended the meeting.
“Did you ask?” Warren asked Warsh several times. “The tone that you are setting is one that seems to invite corruption.”
In the days leading up to every Fed policy meeting, central bank officials are barred from speaking publicly or privately about monetary policy during what is known as the “blackout period,” which also stretches through the day after each meeting. The Wall Street Journal reported that Bowman on June 17, just hours after the Fed’s meeting that month, attended a private gathering of bankers hosted by Bank of America, in which she talked about interest rates. CNN has not verified independently.
The blackout period is intended to prevent Fed officials from influencing financial markets or creating the appearance that some investors have advance access to information that could move markets. It ensures that everyone receives that information simultaneously. If a Fed policymaker is found to have violated the blackout period, which is a rare occurrence in the central bank’s history, they could be asked to recuse themselves from policy decisions or face pressure to resign.
Warsh refused to answer whether he had addressed the issue with Bowman, saying the matter is being investigated by the Fed’s inspector general, Michael Horowitz, who operates independently from the central bank. Warsh said that he acknowledged a letter Warren sent to the inspector general about the matter.
“I’m aware of the letter you sent to the inspector general. Out of an enormous respect for him, his investigation, what he chooses to do with it, I’m going to leave to him,” Warsh said. “I’m not trying to micromanage that.”
Warren also pressed Warsh if anyone “gave you $100 million right before you were sworn in,” equal to the amount he was required to divest within a specified period after becoming Fed chair. Warsh also declined to answer that question.
“Who gave you $100 million right before you were sworn in? Was it a billionaire who has business with the Fed? Was it Stanley Druckenmiller, who’s made billions of dollars betting on what the Fed does? Or was it a different billionaire who gave you the money?” Warren said. Warsh’s ties with Druckenmiller, a high-profile investor, span a decade. He joined Druckenmiller’s Duquesne Family Office after resigning from the Fed in 2011. Warsh also invested tens of millions in the Juggernaut Fund, which is associated with Druckenmiller’s firm. (Those funds are now divested.)
“I will fully comply with the Office of Government Ethics,” Warsh responded.
“I think you’ve been basically harassed a little bit in terms of making accusations to you,” Republican Sen. Mike Rounds of South Dakota told Warsh. “Let me give you just a minute to perhaps respond in a just straightforward manner. Anybody give you $100 million?”
Warsh’s response: “No.”
Rounds added that Warsh’s decision to be “hands off” on the Bowman matter seemed “pretty appropriate.”
“If he would have gotten involved in it, the accusation from some members on this committee would have been that you were trying to influence it,” Rounds said.
This story is developing and will be updated.
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