Will Waller be sued if interest rates are not lowered effectively? The Besant hearing leaves a question: whether to sue depends on Trump

The highest leadership of the Federal Reserve is facing new pressure to cut interest rates this year. Following the investigation of Federal Reserve Chairman Jerome Powell by the U.S. Department of Justice, his successor nominee Kevin Warsh has received a "warning" even before officially taking office.

On Thursday, February 5th, U.S. Treasury Secretary Steven Mnuchin stated during a Senate Banking Committee hearing that whether Warsh, the nominee for Federal Reserve Chairman, would face prosecution for failing to cut interest rates as President Trump wishes "depends on the President."

As one of the members of the Senate Banking Committee reviewing the nominee for Federal Reserve Chairman, Democratic Senator Elizabeth Warren asked Mnuchin to commit that Warsh would not be prosecuted or investigated for not setting interest rates according to the President's wishes. Mnuchin refused to make such a commitment, stating that Trump's previous comments about prosecuting Warsh were a "joke."

Trump stated on Wednesday that if Warsh dared to raise interest rates, he would not be nominated as Federal Reserve Chairman, expressing confidence that Warsh understands his desire to cut rates, "I think he wants to do that too."

These statements have heightened market concerns about the independence of the Federal Reserve. Nearly four weeks ago, the U.S. Department of Justice launched a criminal investigation into Powell, focusing on the $2.5 billion cost overruns of the Federal Reserve headquarters renovation project and whether Powell lied to Congress about project details. Subsequently, Powell issued a statement stating that the investigation was due to the Fed's interest rate decisions not "following the President's preferences." Trump also stated on Monday that he wants a thorough investigation into Powell.

Mnuchin Refuses to Commit to Protect Warsh

During the Senate Banking Committee hearing on Thursday, Warren posed a question to Mnuchin that she believed "should be easy to answer": Can you commit that Warsh will not be prosecuted or investigated by the Department of Justice for not cutting rates as Trump requested?

"That depends on the President," Mnuchin responded, shaking his head as he spoke.

Warren's question referenced reports from the weekend. It was reported that Trump joked at a dinner in Washington that if Warsh could not cut rates, he would be prosecuted.

After Mnuchin stated it depends on the President, Warren pressed further, saying this should be a simple question to answer, "If it was just a joke, why not say so directly?"

Mnuchin replied to her: "That was a joke. He (Trump) joked about you—Senator (Warren)—and everyone laughed, there was continuous laughter."

As Trump's aide in searching for Powell's successor, Mnuchin stated during the hearing that Warsh is a "very qualified" candidate.

Trump Sends Clear Signals for Rate Cuts

Trump clearly stated in a media interview on Wednesday that if Warsh expressed a willingness to raise interest rates, he would not receive the nomination for Federal Reserve Chairman. Trump said, "If he comes in and says 'I want to raise rates,' he won't get the job, no." Trump stated at the time that the Federal Reserve would "undoubtedly" cut interest rates because "our rates are too high," and now "we are a wealthy country again."

When asked if Waller understood that Trump wanted him to lower rates, Trump replied, "I think he understands, but I think he wanted to do that anyway."

Trump expressed that he "theoretically" believes the Federal Reserve is an independent institution, while also claiming to be a "smart person," suggesting that his economic predictions should be considered.

Waller served as a Federal Reserve governor from 2006 to 2011, during which he remained vigilant about inflation and often supported higher interest rates. However, in 2025, Waller changed his tune, echoing Trump's view that rates could be significantly lowered, stating in October of that year that the Federal Reserve's work "contradicts the president's policies."

Waller's shift in position is seen as a key factor in his nomination by Trump. On January 30, the day Trump announced Waller's nomination, Trump stated at the White House that Waller would lower interest rates without pressure from the White House. Trump mentioned that Waller had not promised him to cut rates, but he "certainly wants to cut rates."

The Independence of the Federal Reserve Faces a Test

Trump's remarks may become a focal point in Waller's nomination confirmation process.

After the Department of Justice issued a subpoena to the Federal Reserve regarding Powell's comments on the Fed's renovation project, several key senators, including Republican Senator Thom Tillis from the Senate Banking Committee, warned that Trump's nominees for the Federal Reserve would face stricter scrutiny.

Tillis stated on social media last Friday that Waller is "a qualified nominee with a deep understanding of monetary policy," but he indicated that he would oppose the nomination until the aforementioned Federal Reserve investigation is resolved.

In the Banking Committee responsible for handling Federal Reserve nominations, Republicans hold 13 seats, giving them a slight majority over the 11 seats held by Democrats. If all Democratic members oppose the nomination, Tillis's dissenting vote could block Waller's approval.

In a statement confirming the investigation, Powell stated that the inquiry is a veiled attack on the Federal Reserve's ability to independently formulate monetary policy. Officials from the Trump administration denied this intent, but Trump has indeed been pressuring Powell since taking office to cut rates quickly and significantly.

This Wednesday, Trump downplayed the threat to Powell, stating that "many people will say many things," and reiterated his criticism of the Federal Reserve's renovation project, mentioning that "this guy has spent too much money."