U.S. President Donald Trump on the 30th (local time) named former Federal Reserve (Fed) Governor Kevin Warsh as a candidate for the next Fed chair, drawing attention to the impact on the future direction of currency policy. On and off Wall Street, the view is gaining traction that after Chair Powell steps down in May, the first additional rate cut could come as early as June.
Former Governor Warsh has been regarded as the safest choice among the candidates for the next Fed chair. Serving as a Fed governor from 2006 to 2011, he was directly involved in currency policy decisions, including during the global financial crisis.
Stephen Brown, deputy chief North America economist at Capital Economics, said in a note to investors that "the Warsh nomination is one of the better outcomes for investors compared with the other floated candidates," adding, "his long-standing hawkish bent (currency tightening) allays concerns that he could become Trump's 'complete puppet.'"
However, unlike current Chair Jerome Powell, who has pushed back against President Trump's pressure for rate cuts, some say Warsh could move to cut rates in the short term. Trump has cited a "devout believer in steep rate cuts" as his criterion for the next chair, and Warsh also recently noted the need to lower the benchmark rate, aligning in part with Trump's claims.
David Bahnsen, chief investment officer (CIO) of the Bahnsen Group, said in a CNBC interview that "there will be no Fed chair who will not cut rates in the short term," while adding, "Warsh has the respect and trust of financial markets and is a credible chair candidate over the long term."
Meanwhile, financial markets see limited chances of a sharp policy shift even if a new chair takes office. According to CME FedWatch, the interest rate futures market is expecting about two additional rate cuts within the year, and this outlook has not changed much since Warsh was named.