Investing.com — President Donald Trump early on Friday named former Federal Reserve Governor Kevin Warsh as his pick to replace Chair Jerome Powell.
Warsh, who served on the Fed’s Board of Governors from 2006 to 2011, was instrumental in acting as an intermediary between Wall Street and the banking industry during the height of the financial crisis.
His nomination also quelled fears about the central bank’s independence, while reverberating across markets. Wall Street slipped in light of Warsh’s hawkish views in the past, while the dollar surged. The biggest move undoubtedly came in precious metals, where a massive runup in gold and silver saw a spectacular unwind.
See below for various reactions to the Warsh announcement:
Derek Izuel, chief investment officer at Shelton Capital Management:
“Leadership changes at the Fed matter at the margin, but policy outcomes are ultimately committee-driven. The bigger question for markets is whether the next chair reinforces the Fed’s independence and its data-dependent reaction function.
If investors perceive a tilt toward tighter policy or a stronger inflation focus, that can lift term premiums and pressure rate-sensitive assets in the near term. If the market instead interprets continuity with the current framework, the reaction is typically more muted.”
Charlie Ripley, senior investment strategist at Allianz Investment Management:
“The nomination of Kevin Warsh…has potential to be a pivotal change for U.S. monetary policy and the mandate for the Fed. Warsh, while having experience as a former Fed governor, he is known as an inflation hawk, but his return is expected to brings a more nuanced approach to the Fed’s leadership.
There is a sense that a Warsh Fed technically leans more hawkish with an unwillingness to utilize the balance sheet to cap long-term rates. With inflation risks continuing to loom on the horizon, balancing political pressures to reduce policy rates will remain a challenge.
On balance, we see Warsh’s nomination ultimately leads to higher risk premiums on long-term rates and the dollar. Momentum towards a directionally steeper yield curve puts duration buyers on notice, with more potential to underperform.”
Jeffrey Roach, chief economist at LPL Financial:
“With five years of history on the Board of Governors under the Bernanke Fed, Kevin Warsh was known as Bernanke’s bridge to Wall Street. Warsh is also known as a critical thinker and should have no problem getting confirmed.
Investors could get nervous with Warsh’s view that many current monetary frameworks are just junk food such as forward-guidance and data-dependency. I think this could potentially be hazardous.
Bottom line: Warsh is a safe pick. He’s forthright, willing to rethink convention, and not necessarily a yes-man for the President.”
Tom Porcelli, chief economist at Wells Fargo:
“We know from our many client discussions that there appears to be at least some degree of comfort with a Warsh led Fed vs. the other choices. But, we all should be mindful that there is also some degree of uncertainty associated with this pick if for no other reason than his public remarks on the economic outlook and the appropriate path for the federal funds rate have been fewer and farther between than the other finalists.
We generally expect Chair Warsh to support a more dovish stance on monetary policy driven in part by his optimism over productivity growth as well as his view of the need for lower rates to support “Main Street.” And of course, a dovish slant is what President Trump wanted.
That said, Warsh has historically been among the most hawkish of the four finalists on President Trump’s shortlist. Warsh’s reputation as a hawk stems from his time as a Fed Governor and during his post-Fed career.”
Matthew Luzzetti, chief U.S. economist at Deutsche Bank:
“Although Warsh has argued for lower rates recently, we do not view him as structurally dovish. Instead…his views have tended to skew hawkish relative to others. The most notable example was his concerns about inflationary risks from QE around the GFC. A more recent example is that he did not support the Fed’s 50bp reduction in September 2024.
Warsh will have to convince his colleagues that rate cuts are appropriate this year, an argument that is unlikely to win unless the labor market shows renewed signs of weakening or inflationary pressures ease materially later this year.”
Chris Zaccarelli, chief investment officer at Northlight Asset Management:
“While the markets are probably relieved that a well-known, former Fed official has been nominated as the next Fed chair, they are also likely to pivot to concerns that he won’t be as dovish as they were expecting the new chair to be.
Like all other Fed Chair appointees it will take some time for him to find his footing and establish his reputation as chair, but in the past we have seen a number of examples where Fed Chairmen – and Supreme Court justices for that matter – end up having a different legacy and style than people (and the Presidents that appointed them) had expected.”
Joseph Brusuelas, chief economist at RSM U.S.:
“I personally find Warsh to meet the very high bar for being the Fed Chair. He should be asked challenging questions on central bank independence, his view on reducing the Fed balance sheet and reform of the central bank.
Moreover, he should be challenged to how he would respond in a financial crisis given his public track record of focusing on inflation risk during a time of rising unemployment and deflation during the early portion of the Great Financial crisis.
Warsh has a range of views and track record that presents significant concerns about how he would proceed during a financial and economic crisis. I would not have recommended him but he is qualified for the job.”
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