Trump Expected to Nominate Kevin Warsh as Federal Reserve Chair
Donald Trump is expected to nominate former Federal Reserve governor Kevin Warsh as the next chair of the US central bank, in what observers describe as an extraordinary attempt to tighten presidential control over monetary policy and challenge the institution's longstanding independence.
The president told reporters on Thursday that he planned to announce his choice for Federal Reserve chair on Friday morning, hinting that "a lot of people think that this is somebody that could have been there a few years ago". This statement fuelled immediate speculation that Warsh was the selected candidate, given he was previously considered for the role in 2017.
Market Reactions and Speculation
Following Trump's comments, there was a significant surge in bets on Warsh's nomination on the Polymarket predictions site, where his chances rose sharply to 94% by Friday. The Financial Times further reported that Trump was preparing to nominate Warsh, citing three sources familiar with the matter.
If confirmed by the Senate, Warsh would replace Jerome Powell, whom Trump first appointed in 2018 but later grew infuriated with after Powell defied repeated presidential calls for lower interest rates. The role of Federal Reserve chair is one of the most powerful positions in the US government, wielding enormous influence over the world's largest economy.
Kevin Warsh's Background and Views
Warsh, a New Yorker who served as special assistant for economic policy from 2002 to 2006, was a Fed governor between 2006 and 2011. His tenure included the critical response to the global financial crisis, and he acted as the Fed's representative to the G20 group of nations.
Currently, Warsh is a lecturer at the Stanford Graduate School of Business and holds roles at several organisations, including:
- The courier company UPS
- The Korean e-commerce firm Coupang
- The Duquesne Family Office, the investment firm of billionaire Stanley Druckenmiller
Historically seen as a monetary policy hawk, Warsh has been a long-time critic of the ultra-loose monetary policies pursued by the Fed since the financial crisis, particularly the central bank's expanded balance sheet. However, he appears to have recently aligned himself with the White House's push for lower borrowing costs. In December, Trump remarked of Warsh: "He thinks you have to lower interest rates."
Economic Implications and Analyst Perspectives
The dollar strengthened following reports of the expected nomination, with the US dollar index rising 0.4%. According to Stephen Brown, deputy chief North America economist at Capital Economics, Warsh would be "a relatively safe choice" for investors compared to other contenders.
Brown noted that Warsh's hawkish views might help counteract concerns about him becoming a "full-blown Trump stooge". However, he warned that Warsh's firm convictions—such as his belief that AI and the Trump administration's regulatory push will help suppress inflation, alongside his advocacy for a much smaller Fed balance sheet—could pose risks of upward pressure on long-term bond yields.
A Fraught Time for Federal Reserve Independence
This long-awaited announcement comes at a highly charged moment for the Fed. Warsh is part of a shortlist of candidates who uniformly support Trump's belief that interest rates should be significantly lower than current levels. While lower rates can stimulate investment and economic activity, they also carry the risk of triggering inflation.
Under Powell's leadership, the Fed has maintained a cautious approach to setting borrowing costs, resisting Trump's demands and becoming a target of presidential fury. Economists emphasise that an independent central bank is crucial for economic stability, allowing it to ignore short-term political pressures and focus on long-term objectives.
Trump's attacks on the Fed have so far failed to compel dramatic rate cuts, but they have eroded trust among business leaders and even some Republican lawmakers regarding his commitment to protecting the central bank's independence. This distrust could complicate Warsh's Senate confirmation.
Political Hurdles and Ongoing Tensions
Thom Tillis, a member of the Senate banking committee and one of the few Republican lawmakers to speak out, has stated he would block Trump's Fed nominations due to an ongoing criminal investigation into Powell over renovations at the Fed's headquarters. Trump has alleged that Powell's handling of these renovations, which exceeded budget, constitutes fraud—a claim Powell denies, arguing the investigation is a consequence of the Fed setting rates based on public interest rather than presidential preference.
Although Powell's term as chair ends in May, his 14-year tenure on the Fed board extends to 2028. He has yet to announce whether he will remain on the board after his chairmanship concludes. Meanwhile, Wall Street remains protective of the Fed's independence; last year, stocks dropped significantly amid rumours that Trump was attempting to fire Powell.
This nomination underscores the ongoing tension between the executive branch and the Federal Reserve, highlighting broader debates about monetary policy, economic stewardship, and institutional autonomy in the United States.
