Donald Trump has announced Kevin Warsh as his nomination for the next chair of the Federal Reserve, selecting a candidate who has been an outspoken critic of the US central bank.
The move ends months of speculation about who the president would pick to replace Jerome Powell, as he waged an extraordinary campaign to influence policymaking at the Fed by repeatedly calling for interest rate cuts. Powell’s second term as chair is due to end in May.
Writing on his Truth Social platform, Trump said: “I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best. On top of everything else, he is ‘central casting’, and he will never let you down.”
Warsh, 55, a former Federal Reserve governor who has deep ties to Wall Street, had previously interviewed for the job of chair in 2017 when the role went to Powell, whose term ends in May. Trump’s pick will have to be confirmed by the Senate.
Being the chair of the Fed is one of the most powerful roles in the US government, with enormous influence over the world’s largest economy.
Stephen Brown, a US economist at Capital Economics, said markets were likely to consider Warsh “a relatively safe choice” and his nomination would alleviate concerns that the president was going to pick “a full-blown Trump stooge” to be the next Fed chair.
Mark Carney, the Canadian prime minister and former governor of the Bank of England, said in a social media post that Warsh was “a fantastic choice to lead the world’s most important central bank at this crucial time”.
The dollar strengthened early on Friday after it was reported that Warsh was expected to be Trump’s choice, and was up 0.5% against a basket of currencies after the nomination. Gold fell by 4.8% to $5,132 an ounce. Wall Street opened slightly lower.
Warsh will still need at least 51 votes in the US Senate to be confirmed. Though Republicans have a 53-47 majority in the chamber, multiple Republican senators spoke in defense of Powell after it emerged that the Fed chair is under federal criminal investigation. One senator, Thom Tillis of North Carolina, said he would block any of Trump’s Fed nominees until the investigation is called off.
On Friday, Tillis said that Warsh was “a qualified nominee with a deep understanding of monetary policy” but said that he would still vote against him until Powell’s investigation is resolved.
Elizabeth Warren, a Democrat and ranking member of the Senate’s banking committee, said in a statement: “No Republican purporting to care about Fed independence should agree to move forward with this nomination.”
Warsh has warned about inflation risks in the US in the past, but has also echoed Trump’s critique of the Fed for being too slow to cut interest rates. High interest rates can alleviate inflation at the risk of upping unemployment. Rates are currently at a range of 3.5% to 3.75%, which most economists at the Fed currently see as neutral to prices and unemployment.
Since resigning from the central bank in 2011 over its post-financial crisis stimulus package, Warsh has criticised it publicly on multiple occasions. In April last year, he issued a stinging attack, saying the institution’s central bankers should not be treated as “pampered princes” and it too regularly “opines on matters outside its remit” which has led to “systemic errors” in its main role of trying to keep prices stable.
Warsh, a New Yorker who was special assistant for economic policy from 2002 to 2006, served as Fed governor between 2006 and 2011, a period that included the response to the global financial crisis, and was its representative to the G20 group of countries.
He is now a lecturer at the Stanford Graduate School of Business and has roles at the courier UPS, the Korean e-commerce company Coupang and the Duquesne Family Office, the investment firm of the billionaire Stanley Druckenmiller.
Warsh is married to Jane Lauder, the granddaughter of the cosmetics magnate Estée Lauder and daughter of Ronald Lauder, the billionaire who has interests in Greenland and encouraged Trump to attempt to acquire the territory.
Other candidates on the shortlist to be Federal Reserve chair had been Kevin Hassett, the national economic council director; Christopher Waller, a Fed governor, and Rick Rieder, an executive at BlackRock.
Warsh has been a longtime critic of the ultra-loose monetary policy pursued by the Fed since the financial crisis, including the central bank’s expanded balance sheet. He had previously been seen as a monetary policy hawk, but appears to have aligned himself with the White House’s push for lower borrowing costs.
In December, Trump said of Warsh: “He thinks you have to lower interest rates.”
Renaissance Macro Research said in a note that Warsh could have been siding himself with the president to appease him. “Warsh has been a monetary policy hawk his entire career and most importantly, during a time when the labor markets fell out of bed,” it said. “His dovishness today stems from convenience. The president risks getting duped.”
Brown said Warsh’s “long-running hawkish views should help to counteract concerns that he might morph into a full-blown Trump stooge.
“That said, his firm conviction that both AI and the Trump administration’s regulatory push will help to hold down inflation, as well as his longstanding view that the Fed should operate with a much smaller balance sheet, present the risk of some upward pressure on long-term bond yields.”
