#沃什听证会引发争议 Wosh Hearing Review — Signs of Change in the Federal Reserve Emerge

The real suspense isn't in the hearing, but within many members of the Republican Party!
After watching the hearing, everyone thought Wosh performed well, and his nomination was almost certain. But the reality is quite the opposite, as Nick Timiraos of the "New Federal Reserve News Agency" said, whether Wosh can be confirmed has little to do with his performance at the hearing. The ultimate decision-making power lies with Republican Senator Tom Thillis.

Currently, the Senate Banking Committee holds a narrow majority with 13 votes to 11 for the Republicans. This means that if just one Republican senator opposes, the nomination will result in a 12-12 tie, preventing it from proceeding to a full Senate vote. Thillis has already stated clearly that he will not support any Federal Reserve nominations until the Department of Justice concludes its investigation into Powell. This situation is full of irony. Thillis’s reason for opposing the investigation is precisely to "protect the independence of the Federal Reserve from political interference." He even said at the hearing that he reviewed the renovation project of the Fed headquarters and, although overspending is regrettable, overall it was compliant and legitimate. In other words, he doesn’t believe Powell has any issues; he simply opposes Trump’s use of investigations to pressure the Fed. This creates a deadlock: Trump uses investigations to force Powell to cut rates, while Republican senators, aiming to protect Fed independence, block Trump’s nominee for Fed Chair. Now both sides are stuck, unwilling to make the first move.

The time window is rapidly closing. The Department of Justice has already blocked the Department of Justice from issuing subpoenas to the Fed, and prosecutors must decide whether to appeal by May 3. Powell’s term officially ends on May 15, leaving less than ten legislative days before then. If Trump insists on continuing the investigation, Wosh is almost certain not to take office on time. At that point, Trump will face a dilemma: either accept Powell’s continued role as acting chair, risking his own reputation, or forcibly dismiss Powell, triggering an unprecedented constitutional crisis. Neither option is good for Trump, so he should probably abandon further attacks on old Powell.

More Important Than Rate Cuts: Potential Deep Reforms at the Fed
Many focus only on whether Wosh will cut rates, but overlook another, more significant signal he sent at the hearing: if he finally takes office, the way the Fed operates will undergo the most profound changes since the Volcker era. These changes will have a far-reaching impact on markets, much more than a few rate cuts.

First is the reconstruction of the inflation framework. The current approach is an average inflation targeting system, meaning if inflation was below 2% in previous years, the Fed allows inflation to run above 2% later to make up for the shortfall. The problem with this framework is that it’s easily affected by short-term supply shocks, such as rising oil prices or tariffs—factors unrelated to monetary policy—that can make the Fed hesitant to cut rates. Wosh wants to overhaul this framework. He favors using indicators like trimmed mean inflation to measure inflation, essentially increasing tolerance for inflation. Coupled with his proposed AI-driven productivity deflation logic, this acts as a "double insurance" for future rate cuts. As long as core inflation remains under control, even if overall CPI is slightly higher, the Fed might still choose to cut rates.

Second is reforming communication methods. Wosh explicitly states that current Fed officials speak too much, which causes market confusion. He hints at possibly removing the current dot plot and reducing public speeches by officials. The dot plot, a product of Powell’s era, involves quarterly anonymous forecasts of future interest rates. However, it often diverges from market expectations, increasing volatility. If the dot plot is eliminated, markets won’t focus on every meeting’s dot plot for trading, and the Fed’s policy flexibility will greatly improve.

The third and most controversial point is Wosh’s view that the Fed’s massive balance sheet is a primary cause of the U.S. "K-shaped economy." What is a K-shaped economy? Post-pandemic, the U.S. economy has become highly polarized: the wealthy holding stocks and real estate have seen their wealth soar, while ordinary workers’ wages lag behind inflation, making life increasingly difficult. The top 1% of Americans now hold 32% of the nation’s wealth, while the poorest half owns only 2.5%. Wosh argues that the Fed’s balance sheet, which expanded from $800 billion in 2006 to $6.7 trillion today—an eightfold increase—has not distributed money evenly. Instead, it first flowed into banks and the wealthy. Wealthy individuals, after receiving the money, don’t spend on staples but buy stocks and real estate, pushing up asset prices. The result is the rich get richer, while ordinary people bear the brunt of inflation. Wosh advocates gradually shrinking the Fed’s balance sheet and explicitly states that the Fed should no longer hold long-term government bonds or mortgage-backed securities. His logic is that reducing the balance sheet will decrease market liquidity, curb asset bubbles, and slow the wealth accumulation of the rich. Simultaneously, combined with rate cuts, this would lower mortgage, auto, and corporate financing costs for ordinary people, channeling money into the real economy rather than virtual assets. Simply put, turn off the tap flowing to the wealthy and open the tap for ordinary people. Additionally, Wosh expressed support for integrating cryptocurrencies into the formal financial system but firmly opposes issuing a central bank digital currency (CBDC). This means that if he takes office, the Fed’s financial regulation policies will generally become more relaxed.

What to Watch for in the Next Month
Currently, Wosh’s nomination remains highly uncertain. Over the next month, several key dates and events require close attention.

The first is May 3: whether the Department of Justice will appeal the subpoena issue. If DOJ drops the appeal, the investigation into Powell will likely end quickly, and Thillis will have no reason to oppose Wosh’s nomination. This appears to be the most likely scenario. If DOJ insists on appealing, the investigation will drag on, and Wosh’s confirmation will become highly unlikely.

The second is May 15: Powell’s term ends. If Wosh is not confirmed by then, Powell will continue as acting chair. The biggest market risk then will be whether Trump chooses to compromise temporarily or to forcibly dismiss Powell.

Overall, this hearing did not resolve any fundamental conflicts, but it is a crucial turning point. Over the past decade, we’ve become accustomed to a Fed that actively intervenes in markets and acts as an all-powerful entity. Now, some are proposing to revert it to a more traditional role: focusing solely on price stability and minimizing market intervention. Regardless of whether Wosh finally takes office, this discussion is already influencing market expectations. For ordinary investors, rather than speculating on whether rates will be cut next month, it’s more important to pay attention to these potential deep changes at the Fed. Because these changes will truly shape the valuation logic of global assets in the coming years.