What Trump's pick for Fed Reserve could mean for US economy

US President Donald Trump has announced that he will nominate Kevin Warsh as the next chair of the Federal Reserve, the central banking system of the country. If confirmed by the Senate, Warsh would replace Jerome Powell, who has publicly clashed with Trump for months over interest rates and the direction of economic policy.

Warsh, a former member of the Federal Reserve Board of Governors from 2006 to 2011, brings deep experience in central banking and financial markets.

Analysts say Trump’s choice signals a preference for an established figure who understands the institution, but they caution that markets will be watching closely for any sign that the Fed’s independence could be compromised under political pressure.

The nomination comes at a sensitive moment for the central bank. The Federal Reserve is facing an unusually divided policy environment, with some officials advocating interest rate cuts to protect jobs and stimulate growth, while others favour holding rates steady to prevent inflation from reigniting, according to an analysis by the Australian Morning Star

Warsh has in recent years argued that the Fed is suffering from “mission creep” and has expressed support for lower interest rates and institutional reform. Analysts cited by the Morning Star suggest this could point to easier monetary policy in the year ahead, even if economic growth remains strong. At the same time, they note that Warsh’s earlier record of supporting higher rates to combat inflation could temper any move toward excessive easing.

The Fed is also contending with growing scrutiny of its independence. Earlier this month, the US Supreme Court heard arguments over whether Trump has the legal authority to remove Governor Lisa Cook from her post. Separately, the Department of Justice has issued subpoenas related to the Fed and Powell in connection with the renovation of the central bank’s office buildings, a move that many analysts have criticised as an overreach by the executive branch.

Warsh is currently a fellow at Stanford University’s Hoover Institution. He began his career on Wall Street at Morgan Stanley before serving on the National Economic Council and later joining the Federal Reserve Board during the administration of President George W. Bush. As a Fed governor, he played a role in navigating the 2008 global financial crisis.

Once regarded as a policy “hawk” who favoured tighter monetary conditions, Warsh has more recently aligned himself with Trump’s critiques of the Fed. He has supported lower interest rates and publicly defended the president’s frustration with Powell. “The Fed’s track record under Chairman Jerome Powell is one of unwise choices,” Warsh wrote in a Wall Street Journal op-ed last fall, arguing in favour of balance sheet reductions and warning against institutional overreach.

The article points out that market reaction to the nomination has so far been measured. Christopher Hodge, chief economist at Natixis, wrote in a note to clients that Warsh would likely be seen as “fairly credible by the markets,” adding that he “should have no problem being confirmed by the Senate.”

Luke Bartholomew, deputy chief economist at Aberdeen Investments, also emphasised Warsh’s credentials. “Warsh’s experience on the Fed, where he developed a reputation as a very competent crisis fighter with a good understanding of financial markets, and his long track record of independent thought about monetary policy mean he is a credible nomination,” he said.

Hodge noted that Warsh is a supply-side optimist, meaning he believes deregulation and tax cuts can boost productivity across the economy. That outlook, he wrote, could be used to justify a move to “rapidly lower rates.” However, he cautioned that “if those productivity gains do not materialise and inflation remains sticky, Warsh would likely pivot to a more hawkish stance.”

James Angel, an associate professor of finance at Georgetown University’s McDonough School of Business, has been cited by the article as describing Warsh as someone who “has the background and experience that we expect for a Fed Chair,” including “pedigrees from all the right places” and experience with the 2008 financial crisis as a Fed governor. “My only concern with any Trump appointee,” he explains, “is whether he promised Trump that he would bow down to him and lower interest rates too much to try to make things look good at election time.”

By Nazrin Sadigova