President Donald Trump said on Thursday that he plans to announce his nominee to replace Federal Reserve Chair Jerome Powell on Friday, fueling growing speculation that former Fed Governor Kevin Warsh will be selected.
Bloomberg News later reported that the White House is preparing to nominate Warsh as the next Fed chair, citing sources familiar with the matter. Warsh, who is on the shortlist of candidates to lead the central bank when Powell’s term ends in May, met with Trump at the White House on Thursday, according to one source.
The prospect of a Warsh nomination has prompted varied reactions across global markets, with investors weighing its implications for interest rates, the Fed’s balance sheet and the U.S. dollar.
Market Reaction and Policy Expectations
Damien Boey, portfolio strategist at Wilson Asset Management in Sydney, noted that Warsh has publicly favored lower interest rates but supports a smaller Federal Reserve balance sheet. Markets, he said, are beginning to question what a reduced balance sheet would mean, triggering some selling pressure in assets such as bonds, gold and cryptocurrencies that have benefited from balance-sheet expansion.
Kristina Clifton, senior economist and senior currency strategist at Commonwealth Bank of Australia, said the dollar strengthened on the news because Warsh is seen as less dovish than other potential candidates, such as Kevin Hassett. She added that Warsh may be more inclined to preserve the Fed’s independence and adhere closely to its inflation mandate, pointing out that he previously opposed quantitative easing.
Ben Bennett, head of investment strategy for Asia at L&G Asset Management in Hong Kong, said investors broadly expect Trump’s nominee to be more dovish than Powell, potentially paving the way for rate cuts after May. That outlook could weigh on the dollar while pushing long-term yields higher to reflect increased risk premiums, though Bennett cautioned that these expectations may already be priced in.
Joseph Brusuelas, chief economist at RSM US LLP in Austin, said bond yields are likely to rise across the curve, particularly at the long end. He added that while the dollar’s initial reaction may be higher, renewed concerns over policy unpredictability in Washington could ultimately undermine the currency.
Sonu Varghese, global macro strategist at Carson Group in Chicago, warned that a Warsh-led Fed could tilt slightly hawkish. While Warsh has recently discussed rate cuts, Varghese said his historical stance may limit his credibility in pushing for aggressive easing, potentially leading to a divided Federal Open Market Committee and heightened market volatility.
Shoki Omori, chief desk strategist at Mizuho Securities in Tokyo, said Warsh would likely maintain pressure for gradual rate cuts, though the pace would be slower than markets expect. Omori added that Warsh is viewed as more moderate than Hassett, contributing to gains in the dollar against the yen.
Khoon Goh, head of Asia research at ANZ in Singapore, said a Warsh appointment would be seen as reinforcing Fed independence rather than aligning the central bank closely with Trump’s preferences. He cautioned, however, that recent currency moves may reflect position-adjusting ahead of the weekend rather than a clear directional shift.
Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney, said a Warsh nomination would be significant given his reputation and past defense of Fed independence. Catril said markets have reacted positively, viewing Warsh as someone who would introduce measured reforms without fundamentally altering the Fed or compromising its autonomy.
Tim Kelleher, head of institutional FX sales at Commonwealth Bank in Auckland, said the likelihood of a Warsh nomination has prompted some immediate dollar buying, though he expects limited knee-jerk reactions. Kelleher described Warsh as a familiar and stabilizing figure for markets, seen as a “steady pair of hands” rather than a disruptive choice.