Trump Names Warsh as Fed Chair, Markets Price Hawkish Shift
Former Fed governor Kevin Warsh tapped to replace Powell in May. Dollar rises, Treasury yields climb on expectations of tighter policy.
President Trump made it official Friday morning: Kevin Warsh will be his nominee to lead the Federal Reserve.
"I am pleased to announce that I am nominating Kevin Warsh to be the CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM," Trump wrote on Truth Social early Friday.
Markets reacted immediately. S&P 500 futures dropped 0.4%, Nasdaq futures fell 0.5%, and the dollar strengthened. The 30-year Treasury yield climbed five basis points. Traders are pricing in a Fed that cuts rates more slowly under Warsh than current projections suggest.
The nomination ends months of speculation about who would replace Jerome Powell when his term expires in May. The answer—a former Fed governor who has criticized the central bank's pandemic-era policies—signals a hawkish turn for monetary policy.
Who Is Kevin Warsh
Warsh served on the Fed's Board of Governors from 2006 to 2011, becoming the youngest governor in the institution's history at age 35. During the 2008 financial crisis, he served as the Fed's primary liaison to Wall Street, helping coordinate emergency lending facilities.
He's spent the years since at Stanford's Hoover Institution, where he's been vocally critical of Fed policy. His core argument: the central bank kept rates too low for too long during 2021-2022, contributing to the worst inflation spike in four decades.
That perspective matters for what comes next. A Fed chair who believes rates stayed too low won't rush to cut them further.
Market Implications
The bond market's reaction tells the story. When Warsh speculation intensified earlier this month, yields rose and the dollar strengthened. Friday's confirmation accelerates that trade.
CME FedWatch pricing before the announcement showed markets expecting one rate cut by June and possibly a second by December. Those odds will likely drift lower in coming days as traders recalibrate.
Warsh's framework suggests he views the current 3.5%-3.75% fed funds rate as closer to neutral than most FOMC members do. If he's right, there's less room to cut even if inflation continues moderating.
For equities, the calculus is mixed. Growth stocks that benefited from 2024's rate cut cycle face a less friendly Fed. Value stocks and financials—which benefit from steeper yield curves—may outperform.
The Confirmation Battle
Warsh's path to confirmation isn't guaranteed.
The DOJ investigation into Powell has complicated Fed politics. Senator Thom Tillis, a Republican whose vote is crucial, has said he'll block any nominee until the Justice Department resolves its inquiry into the current chair.
That investigation centers on testimony Powell gave last June about a $2.5 billion building renovation. It's the first time a sitting Fed chair has been subject to DOJ scrutiny. The timing—coinciding with Trump's push to replace Powell—has raised concerns about Fed independence.
Warsh himself is well-regarded by Senate Republicans, which helps. He served in the George W. Bush administration before joining the Fed and has maintained relationships across the party establishment. His confirmation hearing will likely focus more on policy views than personal controversy.
What Changes Under Warsh
Three policy shifts to watch:
Rate path: Warsh has argued the neutral rate may be higher than current estimates. That means fewer cuts, slower pace, and a higher terminal rate for this cycle.
Communication: Warsh has criticized the Fed's forward guidance regime, arguing it constrains flexibility. Expect less explicit signaling about future rate moves and more emphasis on data dependence.
Balance sheet: The Fed continues quantitative tightening at a pace of roughly $60 billion monthly. Warsh has supported faster balance sheet reduction. He may push to accelerate or extend QT beyond current plans.
Powell's Final Months
Powell's term runs through May 15. He's indicated he intends to serve it out despite political pressure and the DOJ investigation.
The January FOMC meeting this week kept rates unchanged, as expected. The next decision comes March 19—likely Powell's final rate decision as chair.
Between now and then, markets will price in the transition. Warsh isn't Powell, and the policy differences will show up in term premiums, forward rates, and equity valuations.
For traders watching the broader economy, the Warsh nomination represents the clearest signal yet of where policy is heading: higher for longer, with less accommodation than bulls hoped for.