US stocks rise as Trump eyes 15% growth with Warsh Fed pick
Nominee seen pursuing 4-5 rate cuts vs current 2-cut consensus, signaling more accommodative policy
US stocks advanced in early Tuesday trading as investors parsed the implications of Donald Trump's Federal Reserve chair nomination, with the former president touting Kevin Warsh's potential to drive "more than 15 per cent" economic growth.
The Dow Jones Industrial Average inched up 0.04% to reach new intraday and closing highs, while the S&P 500 gained approximately 0.5%, extending a two-day winning streak. Technology stocks led the rally as the S&P 500 opened at 6,917.26. US stock futures were largely flat at the start of trading, suggesting investors were taking a measured approach to the central bank news.
According to reporting by the Wall Street Journal, Trump acknowledged that his 2017 decision not to nominate Warsh for Fed Chair was a "really big mistake." The former president expressed confidence that Warsh could propel the US economy to achieve more than 15% growth if he "does the job that he's capable of."
Warsh, who served as a Federal Reserve governor from 2006 to 2011, was formally nominated on January 30 to succeed Jerome Powell, whose term ends in May. While historically viewed as an inflation hawk, Warsh's recent stance on interest rates has shown a nuanced shift. He has argued that the Federal Reserve has been "backward-looking" and "too slow to cut rates," suggesting that monetary policy should not be framed solely through the policy rate.
Macro expert Steven Major suggested that Warsh could implement "four or five rather than two" rate cuts, significantly exceeding the current market consensus. The prospect of more aggressive rate cutting has prompted investors to favor shorter-term bonds over longer maturities, steepening the yield curve. The 10-year Treasury yield was down, trading near 4.18%.
The nomination has not been without complications. Republican Senator Thom Tillis has vowed to stall all Federal Reserve nominations as long as the Trump administration continues a Justice Department probe into Powell concerning the Fed building renovation project, potentially delaying Warsh's confirmation.
Warsh contends that if the Fed's "bloated" balance sheet can be reduced, the resulting space could allow for lower interest rates. He believes that businesses are becoming more productive due to factors like artificial intelligence, which could help keep inflation in check even with economic growth.
The Commerce Secretary Howard Lutnick has predicted 6% GDP growth by 2026, while Anthropic CEO Dario Amodei stated last month that the economy could grow by 5% to 10% driven by the AI boom. The US economy grew at an annualized rate of 4.3% in the July-September quarter, exceeding expectations and marking the strongest growth since Q3 2023.
Investors are now focused on upcoming economic data, including retail sales, employment costs, and later in the week, the Consumer Price Index and inflation readings, which will provide further insight into the trajectory of monetary policy under a potential Warsh-led Federal Reserve.