US stocks slide as Trump picks Warsh for Fed Chair
Nomination of former hawkish governor sparks bond yield surge and dollar rally
US stock futures dropped and Treasury yields surged on Friday after President Donald Trump nominated Kevin Warsh, a former Federal Reserve governor with a history of hawkish monetary policy views, as the next central bank chair.
S&P 500 e-mini futures declined 0.5%, while Nasdaq futures slid 0.5% in pre-market trading, as investors priced in the prospect of tighter monetary policy under a Warsh-led Federal Reserve. The 10-year Treasury yield climbed to 4.27%, reflecting expectations of a more restrictive stance from the central bank.
The US dollar strengthened 0.2% to 0.8% against major G10 currencies, extending gains as currency traders bet on higher interest rates under the new leadership. The broader risk-off sentiment rippled through global markets, with MSCI's index of Asia-Pacific shares outside Japan tumbling as much as 1.3%.
Warsh, 55, served as a Federal Reserve governor from 2006 to 2011 and was the youngest person ever to hold the position when appointed at age 35. During his tenure, which included the 2008 financial crisis, Warsh acted as the Fed's primary liaison to Wall Street and was the central bank's representative to the G20 group of nations.
His selection has raised concerns among investors given his reputation as a monetary hawk who opposed the Federal Reserve's quantitative easing programs, describing the bond-buying initiatives as "reverse Robin Hood" that disproportionately benefited asset holders. Warsh's early resignation from the Fed in 2011, before his term ended, was partly attributed to his disagreement with the central bank's accommodative policies.
"Warsh's long-running hawkish views might temper concerns about him becoming a Trump stooge, but his conviction that AI and regulatory push will control inflation, combined with his desire for a smaller Fed balance sheet, could lead to upward pressure on long-term bond yields," noted analysts at ING.
However, Warsh's recent public comments have aligned with Trump's criticism that the Fed has been too slow to cut interest rates. Some analysts view this apparent shift as strategic positioning rather than a fundamental change in his core monetary philosophy, noting that any rate cuts under his leadership would likely come only if economic data warranted them rather than following political timelines.
The market reaction extended beyond equities and bonds. Gold prices declined, and Bitcoin dropped to a two-month low, as higher interest rate expectations reduced the appeal of non-yielding assets. Brent crude oil fell 1.4%, adding to commodity weakness amid concerns about tighter monetary conditions slowing economic growth.
Warsh, who is married to Jane Lauder, granddaughter of cosmetics founder Estée Lauder, currently serves as a lecturer at Stanford Graduate School of Business and holds positions at UPS, Korean e-commerce company Coupang, and the Duquesne Family Office. He had previously interviewed for the Fed chair role in 2017, which ultimately went to Jerome Powell.
The nomination now heads to the Senate for confirmation, where Warsh's track record and recent policy evolution will face scrutiny from lawmakers. Investors will be watching closely for any signals about the future direction of US monetary policy, particularly given the complex interplay between Warsh's historical hawkishness and his recent alignment with Trump's calls for lower interest rates.