The next person who’ll be able to move markets by raising an eyebrow during a press conference has been named. Yesterday, President Trump nominated former Fed Governor Kevin Warsh to lead the central bank, ending months of intrigue about his choice to replace Jerome Powell, whose term ends in May.
Markets appeared cautiously optimistic…about the prospect of the Wall Street veteran helming the Fed. Despite being the son-in-law of a major Trump donor, Warsh is perceived as less closely aligned with the White House than other contenders for the role, and more likely to preserve apolitical decisionmaking at the world’s most influential central bank.
The price of gold and silver (investor panic favorites) dropped as much as 12% and 36%, respectively, while the dollar soared.But the yield on long-term government bonds rose slightly, indicating that investors might view Warsh as inclined to cut interest rates more aggressively than Powell.
The successor naming comes after Trump repeatedly accused the Fed chair of being too slow to slash interest rates and amid a Justice Department criminal probe, which Powell and critics from across the political spectrum have called a political attack.
What’s up with Warsh?
Many analysts and economists see him as an experienced wonk due to his tenure as a Fed governor in the late 2000s. He won plaudits for coordinating a response to the 2008 financial crisis with Wall Street and gained a reputation as an inflation hawk and advocate for higher interest rates.
But in the past year, he’s vocally aligned himself with Trump’s calls to cut interest rates faster, with some prominent economists accusing him of trying to curry political favor. Warsh has criticized the Fed for straying beyond its core mission of taming inflation and promoting employment—saying it should hold fewer bonds (which could increase borrowing costs), ease off on regulating banks, and not focus on goals like managing climate risk.
A nomination doesn’t mean confirmation…Republican Senator Thom Tillis vowed to block Warsh’s confirmation yesterday until the criminal probe into Powell—which Trump reiterated support for yesterday—is resolved.—SK