Kevin Warsh: The Front-Runner for Federal Reserve Chair
US President Donald Trump has announced he will reveal his choice for the next Federal Reserve chair on Friday, bringing an end to months of intense speculation about who will succeed Jerome Powell at the helm of the US central bank. The decision is poised to have significant implications for both the American and global economies.
From Speculation to Front-Runner
On Thursday evening, Trump confirmed he would name his candidate on Friday morning, describing the individual as "very respected" and "known to everybody in the financial world." This statement triggered widespread rumours about the potential appointee, particularly as White House officials reportedly cooled on the candidacy of Black Rock executive Rick Reider.
This shift in sentiment propelled former Federal Reserve governor Kevin Warsh to the forefront of the race. On the Polymarkets prediction site, bets on Warsh surged dramatically, with his chances of nomination climbing to 94 per cent by Friday, compared to Reider's minimal three per cent. Other finalists for the position include Fed governor Christopher Waller and White House economist Kevin Hassett.
A Career Spanning Finance and Politics
Kevin Warsh is no stranger to the Federal Reserve, having served as a governor on the Fed's Board from 2006 to 2011. At just 35 years old when nominated, he was the youngest person to hold this position. He previously interviewed for the top job in 2017 before it ultimately went to Jerome Powell.
Warsh's career demonstrates deep connections across both Wall Street and Washington. He served as an economic adviser for the George W. Bush administration, focusing on domestic finance, banking, and regulatory policy. Prior to his White House role, he worked at financial services firm Morgan Stanley from 1995 to 2002, operating within the M&A division and eventually rising to executive director of the department.
Currently, Warsh holds multiple positions, including lecturer at the Stanford Graduate School of Business, and roles at courier UPS, Korean e-commerce company Coupang, and the Duquesne Family Office, the investment firm of billionaire Stanley Druckenmiller.
Relationship with Trump and Policy Stance
Warsh is known to have a close relationship with President Trump, having reportedly advised him on economic policy in the past. However, his hawkish stance during his time at the Fed was initially viewed as a potential barrier to gaining the president's trust for the top job.
Nevertheless, Warsh has advocated for a "regime change" at the bank, calling for the Fed to reduce the size of its balance sheet—a position also supported by Treasury Secretary Scott Bessent. Analysts suggest this call for a shakeup at the Fed has been key to his emergence as the front-runner.
Neil Wilson, UK investor strategist at Saxo, commented: "He was quite a hawkish governor back in the day and he favours shrinking the Fed's balance sheet, though he has since said the Fed should be cutting rates, otherwise he would not be getting the job. His appointment should be a net positive for the US dollar and reduce the chances of another big drop."
Dan Coatsworth, head of markets at AJ Bell, noted that Warsh represents a "more orthodox choice," and the uptick in the dollar on Friday following speculation suggests he "won't be a marionette for the Trump administration" and might resist aggressive rate cuts desired by the President.
The Context of Powell's Departure
Jerome Powell, who has repeatedly faced Trump's criticism for his reluctance to slash interest rates, is set to step down in May. The Fed recently held borrowing costs at a 3.5 per cent to 3.75 per cent range, prompting Trump to post on Truth Social that Powell had "absolutely no reason" to keep interest rates high.
Trump's ongoing attacks on the Fed have raised concerns in financial markets about the institution's independence. The odds for Kevin Hassett, a close ally of Trump, plummeted after pushback from senators, including Republican Thom Tillis, over the White House launching a criminal investigation of Powell's testimony, which the Fed defended.
Powell stated that the Department of Justice's decision to serve him with grand jury subpoenas over a renovation of the Fed's headquarters was "a pretext" aimed at pressuring the Fed into making more rate cuts.
As the announcement looms, the financial world watches closely to see if Kevin Warsh will indeed take on one of the most powerful roles in the US government, with substantial influence over the world's largest economy and beyond.
