Trump Selects Kevin Warsh to Head the US Federal Reserve
1 day ago
Danielle Kaye and Nick Edser, Business Reporters
Reuters
In a pivotal move, President Donald Trump has chosen Kevin Warsh to lead the US Federal Reserve, set to take over when the current chairman, Jerome Powell, finishes his four-year term in May. Warsh, a former Fed governor, was a contender for the top position during Trump’s initial term and is known for his critical stance on the Fed’s policies. His selection comes at a time when concerns about the central bank’s independence are escalating, particularly amidst Trump’s vocal criticisms of Powell.
Background on the Appointment
– Warsh’s Fed Experience: He served as a Fed governor from 2006 to 2011 and has been openly critical of key Fed practices, including the institution’s heavy reliance on data and its expansive balance sheet.
– Current Climate: President Trump has publicly expressed frustration with Powell for not cutting interest rates swiftly, recently leading to a criminal investigation regarding Powell’s Senate testimony about Fed renovations. This investigation drew strong reactions from Powell and elicited support from former Fed chairs and central bank leaders.
– Warsh’s Vision: Announcing the nomination via Truth Social, Trump declared that Warsh “will go down as one of the GREAT Fed Chairmen, maybe the best.”
What’s Next for Warsh’s Appointment?
Warsh’s nomination is subject to Senate approval, a process that might encounter significant delays. Should he be confirmed, he will assume leadership during a particularly tense period, as economists and investors closely monitor any emerging threats to the Fed’s autonomy.
Who is Kevin Warsh?
– Professional Background: Now 55, Warsh is a fellow at the Hoover Institution and serves on the board of UPS. His reputation as a Fed governor was largely viewed as hawkish, favoring higher interest rates while taking inflation concerns seriously. However, he seems poised to advocate for lower rates in the short term.
– Recent Trends: As interest rate discussions heat up, Warsh has indicated that the Fed should reduce its balance sheet to lower short-term interest rates. Despite some skepticism regarding this approach, the Fed recently opted to maintain stable rates, even amid White House pressure for cuts.
– Economic Signals: Analysts observe signs of stabilization in the US job market, although job creation remains slow. The unemployment rate is decreasing, while inflation continues to hover above the Fed’s 2% target.
Deutsche Bank economists noted, “Warsh will have to convincingly argue to his colleagues that rate cuts are warranted this year, an argument that will be challenging unless labor market conditions weaken or inflationary pressures significantly ease.”
Family and Political Connections
Warsh’s ties to Trump’s circle run deep; he is married to Jane Lauder from the Estee Lauder cosmetics dynasty. His father-in-law, billionaire Ronald Lauder, is a well-known Trump supporter and donor.
Meanwhile, Republican Senator Thom Tillis has stated his opposition to Trump’s nominees until any potential legal cases against Powell are resolved. Trump has also targeted Fed governor Lisa Cook for removal, accusing her of mortgage fraud, a claim she denies, with the Supreme Court currently evaluating the issue.
The Landscape of Fed Leadership Candidates
Warsh emerged as one of four leading candidates for the Fed chair position, with other contenders including White House economic adviser Kevin Hassett, Fed governor Christopher Waller, and bond expert Rick Rieder. Upon Warsh’s confirmation, the focus will shift to how autonomously he can operate as Fed chair and how he navigates pressure from the Trump administration.
Stephen Brown, deputy chief North America economist at Capital Economics, remarked, “Warsh seems like a relatively safe choice. His historically hawkish views should alleviate fears of him becoming overly influenced by Trump.”
As news of Warsh’s nomination circulated, the dollar strengthened slightly, while gold prices dipped by 6%. Stuart Clark, a portfolio manager at Quilter, expressed that investors might feel relief at Warsh’s nomination, given his prior candidacy in 2017, which lends him credible authority in the market.
Conclusion
With Kevin Warsh set to possibly lead the US Federal Reserve, the central bank’s future direction remains a hot topic. His confirmation could usher in a new chapter for the Fed, particularly regarding interest rate policies and maintaining its independence. Market participants will undoubtedly scrutinize Warsh’s actions and decisions in the months to come.