Trump Nominates Warsh to Succeed Powell as Federal Reserve Chair

Key Points

• U.S. President Donald Trump posted on his Truth Social account on Friday, nominating former Federal Reserve Governor Kevin Warsh to replace Jerome Powell as Fed Chair.
• In the post, Trump said, "I have known Kevin for a long time, and I have no doubt he will be one of the greatest, perhaps the greatest, Fed Chairs." He also called Warsh "a person of great distinction who will never let you down."
• Powell was nominated by Trump in 2017 to succeed Janet Yellen, took office as Chair in February 2018, and his term is set to expire in May. Trump's nomination still requires Senate confirmation.

In-Depth Analysis

Trump's choice of Warsh means he has selected a candidate with experience at both the central bank and Morgan Stanley. Warsh's stance has shifted from his former inflation "hawk" position to a critic of the Fed, aligning more closely with the President's calls for rate cuts.

According to Trump's post, Warsh served on the Fed's Board of Governors from 2006 to 2011, becoming the youngest governor in Fed history at age 35. Currently, he is a lecturer at Stanford Graduate School of Business and a distinguished visiting fellow in economics at Stanford University's Hoover Institution, a public policy think tank based in Stanford, California.

Warsh, 55, holds a Juris Doctor from Harvard Law School and will bring extensive economic policy experience to the role. Before joining the Fed, he served as Special Assistant to the President for Economic Policy and Executive Secretary of the White House National Economic Council from 2002 to 2006. Earlier, he worked in the mergers and acquisitions department at Morgan Stanley in New York.

In an op-ed titled "The Fed's Broken Leadership" published in The Wall Street Journal last November, Warsh outlined his views. He predicted that artificial intelligence would become a "significant deflationary force" and called on the Fed to abandon the "dogma" that "inflation is caused by excessive economic growth," arguing instead that inflation stems from excessive government spending.

Warsh wrote in the op-ed: "Money is too easy on Wall Street, while credit is too tight on Main Street. The Fed's bloated balance sheet—designed to support large corporations in a bygone crisis era—can be significantly reduced. These generous liquidity provisions could be redeployed in the form of lower interest rates to support households and small and medium-sized enterprises."

The President's nomination decision comes as the Fed held its key interest rate steady in the 3.5% to 3.75% range on Wednesday. This decision coincides with Trump pressuring Powell to cut the key rate to as low as 1%. Earlier this month, the Trump administration launched an investigation into Powell's June congressional testimony regarding the Fed's headquarters renovation, drawing criticism from lawmakers in both parties who said it jeopardized the central bank's independence.

On Thursday, Trump again attacked Powell on social media, calling him "Jerome 'Too Late'" and complaining that "Powell's refusal" to cut rates is "costing America hundreds of billions of dollars a year in completely unnecessary and unjustified interest payments."

This week's Fed decision included two dissenting votes. Policymakers warned that inflation remains above the 2% target but did not show the same level of concern about weak hiring as they did last year, when they lowered the benchmark rate accordingly. Powell declined on Wednesday to say when he expects the central bank to resume reducing borrowing costs.

Although stocks traded lower at midday Friday, many analysts and financial executives seemed unfazed by Warsh's selection or were encouraged by the prospect of easing. Scott Helfstein, head of investment strategy at Global X ETFs, said in a statement to CFO Dive on Friday: "This is a fairly market-friendly choice." However, he added that Warsh's interest in shrinking the Fed's balance sheet could trigger some volatility in the rates market.

Michael Feroli, chief U.S. economist at JPMorgan, noted in a Friday report that it remains unclear what Warsh's "true leanings" are or whether he can persuade other Federal Open Market Committee (FOMC) members to follow his dovish views. Feroli said in the report shared with CFO Dive: "Our best guess is that he will make the case for rate cuts this year. We also suspect that, over time, his leanings will be more amenable to revision, possibly even reverting to more hawkish views, especially after the midterm elections and into the final phase of what could be a lame-duck administration."

Nick Araco II, CEO and founder of CFO Alliance, a subscription-based peer network for financial leaders, said via email that mid-market finance chiefs have not yet reached any "hard" conclusions. However, Araco said they are concerned about the potential impact of the new Chair on Fed independence, with most believing that maintaining the central bank's institutional autonomy is crucial for CFOs looking to make "durable" capital and investment assumptions.

He said CFOs are currently adopting a "prepare, don't react" posture, actively stress-testing multiple interest rate and growth scenarios and continuously updating forecasts in real time. Araco wrote: "Based on what we're hearing, most CFOs continue to defer irreversible decisions while keeping executable plans on the shelf. They are not inclined to make bold directional bets at this time."