President Trump is preparing to nominate Kevin Warsh, a former Federal Reserve governor, to lead the world’s central bank, replacing current Chair Jay Powell, according to three sources familiar with the matter. The president indicated he would announce his decision “tomorrow morning” at an event in Washington on Thursday evening.
A Contentious Race for the Fed
This potential nomination concludes a particularly fraught selection process. Trump has publicly criticized Powell’s handling of interest rates, at one point calling him a “moron” and blaming his policies for harming the US economy. The president has repeatedly called for significantly lower borrowing costs, even suggesting a rate of around 1 per cent.
Warsh previously interviewed for the position of Fed chair in 2017, but the role ultimately went to Powell, whose term expires in May. While the White House has not officially commented, the president described his potential nominee as “very respected” and “known to everybody in the financial world.”
Market Reaction and Potential Shifts
Financial markets reacted swiftly to the news. In Asian trading on Friday, the dollar strengthened while gold prices fell. Bill Campbell, a portfolio manager at DoubleLine, noted that Warsh is considered a more “orthodox” choice for the position, and the initial market response reflects this perception. Gold prices decreased by 2.7 per cent to $5,230 a troy ounce, and the dollar rose 0.3 per cent against key trading partners.
Futures markets also showed movement, with the S&P 500 and Nasdaq 100 futures declining by 0.4 per cent and 0.5 per cent respectively, while the Stoxx Europe 600 futures increased by 0.4 per cent. Treasury yields saw a slight rise, and Bitcoin’s price dipped 1.6 per cent to $83,021.
Other Contenders and Senate Concerns
While Warsh’s odds surged to 95 per cent on the Polymarket prediction platform, other candidates remain in contention, including Fed governor Christopher Waller and White House economist Kevin Hassett. However, Hassett’s prospects diminished due to a Senate investigation into a $700 million budget overrun in a Fed headquarters renovation.
The investigation, initiated by the White House, prompted accusations from Powell that it was a “pretext” to pressure the Fed into lowering interest rates. Some Republican senators, led by Thom Tillis, have threatened to block any nominee until the probe is dropped.
Frequently Asked Questions
What is the role of the Federal Reserve Chair?
The Federal Reserve Chair leads the world’s most important central bank, responsible for setting monetary policy to promote maximum employment and stable prices. The chair influences interest rates and oversees the banking system.
Why has Trump been critical of Jay Powell?
President Trump has repeatedly criticized Jay Powell for not lowering interest rates to a level he believes would further stimulate the US economy. He has publicly stated that Powell’s policies are hindering economic growth.
What is Kevin Warsh’s stance on the Federal Reserve?
Warsh has advocated for “regime change” at the central bank and has called for reducing the size of the Fed’s balance sheet. He is considered a more orthodox economic figure.
How will this nomination impact the future of US monetary policy?
