Trump Taps Kevin Warsh to Replace Powell at the Fed
Former Fed governor gets the nod after months of speculation. Markets digest hawkish pivot as confirmation battle looms.
President Trump made it official on Thursday: Kevin Warsh will be his pick to lead the Federal Reserve when Jerome Powell's term expires in May.
The nomination ends months of speculation about who would succeed Powell. It also signals a potential shift in monetary policy philosophy at the world's most powerful central bank.
Who Is Kevin Warsh?
Warsh, 55, served as a Fed governor from 2006 to 2011 under George W. Bush. At 35, he was the youngest person ever appointed to the Federal Reserve Board. Since leaving the Fed, he's been a fellow at Stanford's Hoover Institution and a lecturer at the business school.
His track record suggests he'll run a tighter ship than many on Wall Street expected from a Trump nominee. During his previous Fed tenure, Warsh was skeptical of quantitative easing and generally favored tighter policy. He's been publicly critical of the Fed's pandemic-era response, arguing the central bank kept rates too low for too long.
That hawkish lean complicates the narrative that Trump would install a puppet willing to slash rates on command. Warsh has credibility with the monetary policy establishment—he's no Judy Shelton.
Market Reaction
Stocks fell Friday as traders processed the nomination. The Dow dropped 176 points, or 0.4%, to close at 48,895. The S&P 500 and Nasdaq both declined, with tech stocks hit hardest as the Nasdaq tumbled 1.3%.
Treasury yields rose modestly. The 10-year yield climbed to 4.25%, reflecting expectations that a Warsh-led Fed might be slower to cut rates than Powell's current team.
This builds on the market reaction we saw when Trump signaled Hassett would stay at the White House two weeks ago. Bond traders have been positioning for a hawkish Fed chair outcome.
The Confirmation Battle
Warsh faces a challenging path through the Senate. The DOJ investigation into Powell has created bipartisan discomfort with how the administration has handled Fed independence.
Senate Majority Leader John Thune acknowledged Thursday that without support from certain Republican skeptics, Warsh "probably" couldn't win confirmation. The criminal investigation into Powell—which the president announced earlier this month—shocked senators from both parties. Some view the Warsh nomination as an attempt to pressure Powell to resign early.
If confirmed, Warsh would take the chair in May when Powell's term expires. Powell has made clear he intends to serve his full term despite the pressure campaign.
Policy Implications
The Fed just held rates steady at 3.5% to 3.75% at its January meeting, with markets expecting no cuts until June at the earliest. CME FedWatch pricing shows roughly two quarter-point reductions by year-end—fewer than the three or four cuts some bulls had anticipated.
A Warsh Fed might deliver even less easing. His recent public comments suggest he believes inflation remains sticky and the neutral interest rate may be higher than current estimates. That framework argues for patience rather than preemptive cuts.
For equity investors, this matters. The market rally that lifted the S&P 500 past 7,000 earlier this week was built partly on expectations of continued monetary support. A more hawkish Fed chair could compress multiples, particularly for rate-sensitive growth stocks.
What to Watch
The confirmation hearings will be the next major event. Warsh will face questions about Fed independence, his views on the DOJ investigation, and whether he'll support Trump's preferred policies.
The broader market context matters too. The Fed enters its next meeting in March with a new policy backdrop—a nominated successor who may or may not be confirmed. That uncertainty could influence how the current FOMC communicates about the rate path.
For now, traders are adjusting to a world where rate cut expectations need recalibrating. The nomination doesn't change the near-term policy path—Powell still runs the Fed through May. But it signals where monetary policy might be headed once the transition occurs.