[Column] Wosh's Hearing, the Future of the Federal Reserve — and Bitcoin

At a U.S. Senate Committee on Banking hearing, Republican Senator Kennedy asked a Federal Reserve System (Fed) nominee, Kevin Wush, “Will you become a human puppet (Sock Puppet) for the President?” Wush replied firmly, “Absolutely not.”

The question itself has already become news. Previously, Democratic Senator Warren referred to Wush as “Trump’s puppet,” and Kennedy directly cited that wording to request verification. This is very different from the situation in 2006, when Wush was nominated to the Fed as a governor and received bipartisan support.

The two-and-a-half-hour hearing unfolded from start to finish amid intense political tension. The core of the tension hinged on one question: whether Wush could become an independent Fed chair, or whether he would give in to Trump’s pressure to cut interest rates.

Cryptocurrency markets are paying attention to this for good reason. The choice of the Fed chair determines the direction of the U.S. dollar, and the dollar’s direction changes the macro environment for Bitcoin. The Fed led by Wush is harder to predict than during Powell’s era. Uncertainty itself is precisely the variable that the current market is trying to factor into pricing.

■ Whether Trump received a rate-cut promise

The most heated moment of the hearing came from a question by Democratic Senator Gallego. He asked Wush to confirm under oath in his testimony that the President had never asked him to promise a rate cut in advance. Wush confirmed. Gallego then said, “So either you’re lying, or Trump is lying.” This directly targets a report by The Wall Street Journal last December—that Wush promised Trump a rate cut and received a nomination in return.

Wush was unmoved: “Those reporters need better sources. The President didn’t ask me for anything, and I won’t make such a promise.”

When Democratic Senator Reed asked about Fed independence, Wush’s answer was very precise. He said that elected officials—including the President—having opinions on interest rates does not threaten the operational independence of monetary policy. Independence must be maintained by the Fed itself.

It was a deft balancing act—expressing a desire for independence without directly criticizing Trump. Just how fine that line is will only be known after he becomes chair.

■ The Fed Wush wants, in three directions

Between the political sparring, Wush revealed his own blueprint.

First is rate priority and shrinking the balance sheet. Wush repeatedly emphasized that the main tool of monetary policy should be interest rates. By expanding the balance sheet through quantitative easing (QE), the distribution effects tend to favor the wealthy, while interest rates affect all economic actors. He did not propose a specific target level for the balance sheet, but said it is incorrect for the Fed to hold long-term assets as a way to avoid actually functioning as a fiscal authority.

For crypto markets, this is an important signal. As a recent report from 21Shares noted, there is a structural link between Bitcoin and the Fed’s balance sheet expansion. After Bitcoin was born following the first QE in 2008, demand for Bitcoin has strengthened with each repeated QE cycle. If Wush accelerates balance sheet reduction, this structural relationship could become a headwind in the short term.

Second is reforming the inflation framework. Wush strongly criticized the Fed’s shift in 2020 to a flexible average inflation targeting regime (FAIT). “Back then, they wanted a bit more inflation, and we got more—and we’re still paying the price for it today.” He proposed developing new inflation indicators as the top reform priority. His definition of price stability is simple: nobody talks about the state of prices.

Third is a shift in communication style. Wush criticized the current Fed’s culture of consensus and the overuse of forward guidance. He said he hopes to become a “humble, agile, open” central bank chair and wants a “healthy family argument” culture that welcomes dissenting views. This marks a clear break from the Powell framework and suggests a Fed that will be less friendly to markets is on the way.

■ Can AI become a basis for rate cuts?

An unexpected topic appeared at the hearing: whether artificial intelligence could become a reason to cut rates.

Wush said AI’s supply-side effects will exceed demand growth. If AI increases productivity, growth can be achieved without inflationary pressure, which creates room for rate cuts. The question was raised against the backdrop of Trump’s hope to lower rates to 1% in 2026.

Democratic Senator Van Hollen was skeptical. He asked whether, by 2026, the AI effect could plausibly show up quickly enough to justify a 1 percentage point rate cut. Wush avoided a direct answer.

In crypto markets, this discussion presents two scenarios. If AI supply effects quickly become reality, the Fed would cut rates and liquidity would be released. Historically, this kind of environment has been a strong tailwind for Bitcoin and risk assets. Conversely, if the AI effect falls short of expectations—if inflation persists and rates stay high—then a macro environment similar to 2022 could return.

■ The May 15 deadline

Washington’s clock is pointing toward a date: May 15—the day Powell’s term as Fed chair ends.

A key variable in the confirmation process is Republican Senator Tillis. He said he would not advance Wush’s confirmation vote until the Department of Justice stops investigating the current chair, Powell. There is a way out: Tillis agreed to replace the DOJ investigation with a congressional investigation. But Trump vetoed that option.

If the deadlock continues, Wush’s confirmation may not be completed before May 15. Powell hopes to remain as acting chair, but the Trump administration opposes it. An unprecedented vacancy in the Fed chair position could become a reality.

An empty Fed chair would immediately inject uncertainty into the dollar and financial markets. Bitcoin would react in both directions to such uncertainty. If expectations for a weaker dollar increase, upward pressure may emerge; if overall risk-aversion sentiment increases, downward pressure may follow. Volatility would come before direction does.

■ What Korean investors should watch

Wush’s hearing is not only a U.S. political matter. Through three paths, it connects directly to the Korean market.

The first path is the USD/KRW exchange rate. Wush’s balance sheet reduction policy and the reinforcement of the inflation framework are factors strengthening the dollar. In a market where USD/KRW has already broken above 1500, the Fed led by Wush could exert further pressure on the won. Bank of Korea Governor Lee Chang-yong mentioned “cautious and flexible monetary policy,” precisely because he has already anticipated this variable.

The second path is the macro environment for Bitcoin. A change in Fed chair means a shift in monetary policy direction. If Wush accelerates balance sheet reduction, liquidity will decrease. Conversely, if rates are quickly cut based on an AI logic, liquidity will be released. The two scenarios push Bitcoin in opposite directions. Before the direction is determined, volatility is unavoidable.

The third path is the CLARITY Act. Wush emphasized that the Fed should “stay in its own lane.” Cryptocurrency regulation is not within its lane. This can be read as a signal that the Fed will not involve itself in discussions surrounding the CLARITY Act. Oversight of cryptocurrency regulation may become even more concentrated in the SEC, CFTC, and Congress.

■ Uncertainty itself is policy

The Fed Wush wants is a “humble and agile” Fed. It is a Fed that does not send signals to the market in advance. It is a Fed that openly clashes with dissent.

For markets, this is an uncomfortable Fed. Under the Powell system, markets have become accustomed to forward guidance. People can predict the decision at the next meeting to a large extent. Under the Wush system, that predictability will decrease.

Crypto markets have traditionally been sensitive to uncertainty. But at the same time, uncertainty is also one of the reasons Bitcoin exists. The more unpredictable the central bank is, the stronger the value proposition of assets that do not rely on central banks.

Bitcoin was created in 2009 after the Fed’s first QE. When Wush tries to unwind the legacy of QE, how Bitcoin will react will be yet another test of the essence of this asset.

There isn’t much time left until May 15.