News
30/01/26
Trump taps Warsh to replace Powell as Fed chair: Update
Trump taps Warsh to replace Powell as Fed chair: Update
Adds market reaction, background. Houston, 30 January (Argus) — US president
Donald Trump said he would name former Fed governor Kevin Warsh to replace
Jerome Powell as chairman of the Federal Reserve. "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
chairman, maybe the best," Trump said on social media early Friday. "On top of
everything else, he is ‘central casting,' and he will never let you down."
Warsh, a graduate of Harvard Law School and a former Morgan Stanley director,
became the youngest Fed governor at 35 in 2006, serving through the financial
crisis until 2011. During the height of the financial crisis, in 2008, Warsh was
a key intermediary between the Fed and Wall Street. Warsh is also the son-in-law
of Ron Lauder, heir to cosmetics giant Estee Lauder and a donor and friend of
Trump's who is widely credited as being the person who originally suggested the
idea of the US acquiring Greenland during Trump's first term. Warsh, who has
been critical of the Fed in recent years, argued in a Wall Street Journal
editorial in November that artificial intelligence and Trump's deregulation
agenda gave Fed policymakers margin to ease policy. But he also told an audience
in Boston last year that zero interest rates "leads to very bad economic
outcomes," according to Pantheon Macroeconomics. Market reaction Investors have
followed the Fed chair nomination process closely, concerned about if the
candidate would maintain the Fed's independence from political pressure. Market
reaction Friday to Warsh's nomination was mixed. The dollar index, which tracks
the greenback against six other major trading currencies, rose to 96.9 Friday
from 96.25 after falling to a near-four year low on 27 January. The drop in the
dollar has been driven by uncertainty over Trump's tariff and fiscal policies as
well as his threats to the post-war US-led world order that raise concerns of
the longevity of the dollar as the global reserve currency. Trump's threats to
undermine the Fed's independence have also helped weaken the dollar. CME's
FedWatch tool, which follows market sentiment on the Fed interest rate changes,
showed marginally increased odds of rate cuts in June, the first month Warsh
would be at the helm of the Fed if confirmed. Odds the Fed target rate would be
a quarter point lower after the June meeting rose to 49.2pc from 46.9pc on
Thursday, while odds the rate would be a half point lower rose to 16pc from
13.7pc. "We would advise against drawing strong conclusions about the economic
and market implications" of a Warsh chairmanship at the Fed, Pantheon said in a
note Friday. "Our instincts tell us Mr. Warsh will be more preoccupied with how
history will view his record than with continuing to pander to the President."
Replacing Powell If confirmed by the Senate, Warsh would replace Powell, also a
Trump appointee whose term ends in May, even though he can remain on the board
of governors. While Republicans hold the Senate 53-47, a few Republican senators
have indicated they will not back Trump's pick if the Department of Justice's
criminal probe into Powell's congressional testimony last summer regarding cost
overuns at a Fed building is not dropped, Pantheon noted. Trump has repeatedly
derided Powell as a "numbskull" for allegedly being too slow to cut interest
rates. The Fed this week kept its target rate unchanged after making three
quarter-point rate cuts late last year. Of the 12 policy makers who voted on the
Fed's latest interest rate decision, two Trump appointees, Christopher Waller,
who was under consideration for the chairmanship, and Stephen Miran, who joined
the board of governors late last year after serving as Trump's top economic
adviser, dissented and voted to cut by a quarter point. Inflation has remained
above the Fed's 2pc long-term target while job growth slowed sharply last year.
Powell, in comments this week, suggested the Fed was in no hurry to cut rates.
The Fed in December penciled in one quarter point cut this year. By Bob Willis
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