Trump nominates Warsh for Fed Chair, calls for rate regime change
Former Fed governor advocates lower rates and smaller balance sheet as markets brace for monetary policy shift
President Donald Trump has nominated former Federal Reserve Governor Kevin Warsh to lead the central bank, selecting a Wall Street veteran who has called for a monetary policy "regime change" and lower interest rates. The nomination, announced on Trump's Truth Social platform, would see Warsh replace current Chair Jerome Powell when his term concludes in May 2026.
Warsh, 55, served as a Fed governor from 2006 until 2011, when he resigned over disagreements with the central bank's post-financial crisis stimulus programs and expanded balance sheet. His appointment comes at a critical juncture, with the Federal Funds Rate currently standing at 3.50-3.75% as policymakers navigate inflation pressures and economic growth concerns.
Markets reacted swiftly to the announcement, with the dollar initially strengthening before easing, while gold prices plunged 4.8% to $5,132 an ounce. Wall Street opened slightly lower as investors absorbed the implications of Warsh's monetary policy positions. Analysts anticipate upward pressure on long-term bond yields given Warsh's longstanding advocacy for a substantially smaller Fed balance sheet.
The nominee has been a vocal critic of the Federal Reserve's recent direction, arguing the institution faces a "credibility crisis" and requires fundamental restructuring. While historically considered a monetary policy hawk, Warsh has increasingly echoed Trump's criticisms that the Fed has been too slow to cut interest rates. This shift has led some analysts to question whether his current dovish positioning represents genuine policy evolution or political convenience to secure the nomination.
Despite alignment with Trump's push for lower rates, Warsh has emphasized the importance of maintaining Fed independence, a position that may face scrutiny during Senate confirmation proceedings. His confirmation will require at least 51 votes in the Senate, where challenges are already emerging. Republican Senator Thom Tillis of North Carolina has indicated he will block any of Trump's Fed nominees until a federal criminal investigation into outgoing Chair Powell is resolved, while Democrats, including Senator Elizabeth Warren, have urged opposition to protect Fed independence.
Wall Street has largely viewed Warsh as a "relatively safe choice" compared to alternatives, with his long-running hawkish views potentially tempering concerns about political influence. However, his conviction that artificial intelligence and regulatory policies will help contain inflation—combined with his push for balance sheet reduction—could reshape the yield curve and market dynamics in the coming months.
The nomination represents a pivotal moment for U.S. monetary policy, with markets bracing for potential shifts in both short-term rate guidance and the Fed's approach to its nearly $9 trillion balance sheet. Warsh's confirmation hearings will likely focus on his commitment to central bank independence and his specific plans for implementing the "regime change" he has advocated throughout his career.