Kevin Warsh has been high on the president's list of favorites to become head of the Federal Reserve since Donald Trump's first term. The fact that Trump has waited so long to nominate him is due to one problem: Warsh has for years been seen as an advocate of higher interest rates, notes the BBC. This has changed, however, although – as analysts say – he is “less dovish than many other candidates” and will support fewer interest rate cuts.
Donald Trump has long referred to himself as the “low interest rate man.” The US president put unprecedented pressure on the Fed to reduce borrowing costs.
Since Trump's election as president, however, Warsh has taken steps to shake off his hawkish reputation. But Trump remains uneasy, openly worried about candidates saying one thing when running for the job but doing another once they get it, the BBC notes.
The new head of the Fed – from hawk to dove and criticism of the Fed
Kevin Warsh, who was one of the members of the Fed Board of Governors from 2006 to 2011, is now an outspoken critic of the Federal Reserve. central bank dependence on data.
Warsh enjoyed a relatively hawkish reputation during his tenure at the Federal Reserve, meaning he leaned toward higher interest rates and focused on concerns about inflation. Currently, however, he is perceived as a voice in favor of lower interest rates in the near future, i.e. the so-called pigeon.
“He thinks we need to lower interest rates,” Trump told the Wall Street Journal in December. However, he added: “Everyone I talked to felt the same way.”
Will Kevin Warsh cut interest rates in the US?
He has a difficult task ahead of him. Once in office, he will need to prove his credibility in markets by dealing with political pressure to cut interest rates in the face of a weakening labor market while also trying to balance the need to curb inflation.
“There is a general feeling of hawkishness in the market following the mention of Kevin Warsh's name. He is seen as less dovish than many other candidates and is expected to favor fewer interest rate cutswhich explains the initial strengthening of the dollar,” says Ipek Ozkardeskaya, senior analyst at Swissquote Bank, quoted by Reuters.
What will Kevin Warsh do? Investors know their stuff. “He will not be a supporter of Trump”
Similar signals are coming from the gold market. Recently, gold prices have skyrocketed to record highs. This was partly due to fears that Trump would choose a Federal Reserve chairman who would give in to his demands to lower interest rates, which would lead to a weaker dollar and higher inflation. Buying gold is a hedging strategy against such events.
Compared to other candidates, Warsh is seen as a “relatively safe choice,” as Capital Economics analyst Stephen Brown put it, and is less likely to “turn into a full-fledged Trump supporter.”
Gold prices plummeted as reports emerge about Warsh's imminent nomination, even falling below $5,000 this morning. per ounce.
Who is Kevin Warsh?
Warsh is a 55-year-old economist who started his career on Wall Street at JPMorgan and was an economic advisor to George W. Bush. He is a fellow of the conservative Hoover Institution. He also has close family ties to Trump's entourage. His father-in-law, billionaire businessman Ronald Lauder, is a longtime donor and ally of Trump.
To take over the legacy of Jerome Powell, who left the position of president in May, Warsh still needs to obtain Senate consent.
Source: BBC, Reuters
