Nominee Kevin Worsh argues for smaller Fed balance sheet, interest-rate focus and new inflation data; senators press on AI claims

Kevin Worsh told the Senate Banking Committee he favors using interest rates as the dominant monetary tool and said the Fed's large balance sheet should be reduced deliberately, arguing that the balance sheet has disproportionately benefited holders of financial assets.

"Interest rates are the much better way to be using monetary policy than buying bonds and mortgages," Worsh said, adding that a large balance sheet "disproportionately helps those with financial assets." He said the Fed should focus on the "generalized change in prices" using trimmed averages and new data sources to measure underlying inflation.

Multiple senators pushed back on both the timing and substance of Worsh's proposals. Democrats and some Republicans warned that a rapid reduction of the balance sheet could cause market disruption; Worsh called any regime change "deliberate, well-orchestrated, well-choreographed and well-described." He declined to endorse a precise target for the balance sheet, saying any number would be part of a public deliberation.

A recurring line of questioning addressed Worsh's public claims that advances in artificial intelligence could lift productivity enough to ease inflationary pressures. Senator Kennedy and others called the claim premature. "A lot of this stuff about artificial intelligence making us more productive is a bunch of hype," one senator warned; Worsh said he did not "bank" solely on AI and emphasized the need for better data and nimble policy.

Worsh reiterated the Fed's dual mandate and said he supported reforms to the Fed's communications approach so that the institution would not lock into forecasts prematurely. He argued that forward guidance sometimes locks the Fed into forecasts and called for "messier meetings" with rigorous deliberation inside the Federal Open Market Committee.

The hearing also included discussion of the Fed's supervisory role, potential overreach into politically charged topics such as climate policy, and the practicalities of placing proceeds from divested assets into permissible holdings to avoid conflicts of interest. Senators signaled they will evaluate Worsh's policy framework and his willingness to correct course if data prove forecasts wrong.