Trump Taps Kevin Warsh to Lead the Federal Reserve
Trump nominates former Fed governor Kevin Warsh to lead the US Federal Reserve, raising questions about interest rates, Fed independence, and market impact.
US President Donald Trump has nominated Kevin Warsh to lead the US Federal Reserve when current Chairman Jerome Powell's four-year term expires in May.
Warsh is a former Fed governor and was considered for the chairmanship during Trump's first term. He has been a vocal critic of the Fed and is expected to advocate for lower interest rates going forward.
The appointment comes amid growing concerns about the Fed's independence following increasing attacks on Powell by Trump in recent months.
Powell has angered Trump by not cutting interest rates more aggressively, and federal prosecutors recently launched a criminal investigation into testimony he gave to the Senate regarding renovations to Fed buildings.
Powell strongly protested the Department of Justice (DoJ) investigation and received messages of support from former Fed chairmen and central bank heads.
Warsh, who served as a Fed governor from 2006 to 2011, has re-emerged as a potential candidate for the top job in recent weeks, as speculation mounted about who would replace the current chairman.
Trump said Warsh would be "known as one of the great Fed chairmen, perhaps the best."
Warsh's appointment still requires Senate confirmation, which means it could face significant delays.
If confirmed for the role, he would take the helm of the Fed at a time of unusually high tension, as economists and Wall Street investors watch for threats to the central bank's autonomy.
Who is Kevin Warsh?
Warsh, a 55-year-old economist, is a fellow at the right-leaning Hoover Institution and serves on the board of the courier company UPS. He has been a vocal critic of the Fed, criticizing everything from the central bank's over-reliance on data to its use of assets on its balance sheet. Warsh has ramped up his rhetoric since emerging as a contender for the top Fed job, even calling for "regime change."
He had a relatively "hawkish" reputation as a Fed governor, meaning he favored higher interest rates and took concerns about inflation more seriously.
But now he is seen as a voice that would support lower rates in the future. He has argued that the Fed should shrink its balance sheet to lower short-term interest rates, although some have questioned his reasoning. This week, the Fed voted to keep interest rates steady, despite pressure from the White House for cuts. Policymakers are watching the impact of last year's three interest rate cuts on the economy.
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There are signs that the US job market is stabilizing – jobs are being created at a slower pace but the unemployment rate has edged down slightly. Inflation remains above the Fed's 2% target.
"Warsh will have to convince his colleagues that rate cuts this year are appropriate, an argument that is unlikely to gain traction unless there are new signs of weakness in the labor market or a significant easing of inflationary pressures later this year," Deutsche Bank economists wrote in a research note on Friday.
Warsh also has family ties to those close to Trump. He is married to Jane Lauder, whose family is known for the Estée Lauder cosmetics group. His father-in-law, billionaire businessman Ronald Lauder, has long been a donor and ally of Trump.
Republican Senator Thom Tillis, a member of the Senate Banking Committee, has said he will oppose any Trump nominee until a potential legal case against Powell is resolved.
Trump has also targeted Fed Governor Lisa Cook, whom he wants to remove. He has been accused of involvement in mortgage fraud, which he has denied. The Supreme Court is now investigating the matter.
Warsh was considered one of the four leading candidates for the Fed job. The other leading candidates were White House economic advisor Kevin Hassett, Fed Governor Christopher Waller, and Wall Street bond guru Rick Rieder.
When Warsh takes office, financial markets will be closely watching how independently he operates from President Trump.
Stephen Brown, deputy chief North America economist at Capital Economics, said Warsh "seems like a fairly safe choice."
He added, "Warsh's long-held hawkish views will help allay concerns that he might be entirely a puppet of Trump."
Stuart Clark, a portfolio manager at wealth management business Quilter, said investors would "breathe a sigh of relief" at Warsh's nomination. He added, "Warsh was also a contender for this job in 2017 and therefore comes to the position with an authority that is respected across the market."
"Concerns about the Fed's independence and any erosion of it should now be mitigated, although Warsh's words and actions will be closely scrutinized by market participants."
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