How is Wall Street reacting to Trump's new Fed chair pick Kevin Warsh

Kevin Warsh is set to replace Jerome Powell as new US Federal Reserve chairman

• Kevin Warsh picked to succeed Jerome Powell as Federal Reserve Chair in May
• Markets react to Warsh's hawkish reputation and concerns over Fed independence
• Investors await clarity on Warsh's policy stance and impact on interest rates

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The dollar pared gains and the Treasury curve steepened after US President Donald Trump announced he’d picked Kevin Warsh to succeed Federal Reserve Chair Jerome Powell in May.

Seen as a relatively hawkish choice, Warsh will need to navigate a president who in his second term pilloried Fed officials for not easing policy as aggressively as he would like. That has sparked concerns about the independence of the central bank in setting benchmark interest rates that shape the cost of borrowing in markets around the world.

Wall Street market-watchers have noted the incoming Fed chair will need to forge a consensus on rate policy across the Federal Open Market Committee’s 12 voting members. Powell, who Trump appointed as chair in 2017, will step down as chair on May 15, though his term as a governor of the Federal Reserve board will run until 2028.

Gennadiy Goldberg, head of US rates strategy at TD Securities

“The market is twist steepening on the nomination of Kevin Warsh as the market remains notably worried about Fed independence. Warsh will also be difficult for markets to read over a longer horizon since he has been critical of the Fed for a long time, but much of that criticism is about the Fed being too dovish.

He’s also opposed to the Fed using the balance sheet. However, the Chair is only one of 12 voting members and still needs to convince his colleagues to either cut rates or change balance sheet policy, neither of which is likely in the near-term. For now it’s status quo, but markets will remain on edge until Warsh makes his views clearer.”

David Robin, an interest-rate strategist at TJM Institutional Services LLC

“Warsh is a data-dependent, Fed-credibility choice, so Fed watchers can breathe a bit of a sigh of relief.

Conversely I’m hard-pressed to think Trump would appoint anyone that didn’t commit to lower rates over time starting in June. But I think any definitive longer-term market reaction needs time and data.”

Tony Farren, managing director in rates sales and trading at Mischler Financial Group

“I thought the market would like him as a selection because he’s strong-willed — not the sort of person who’d tend to cave. In his years on the Fed he definitely leaned hawkish.

I’m not surprised Treasuries would sell off, but I’m surprised at the shape of the curve, because of his reputation. I’m sure he had to concede some things but once he has the job he can do whatever he wants.

I thought the curve would flatten with a Warsh announcement just because of his hawkish reputation — less cuts but lower inflation and a stronger dollar — and we’re getting the opposite. I think that will reverse.

Stocks are having the reaction I expected — weaker because they’re anticipating less rate cuts with Warsh over Hassett, with a stronger dollar because he’s well respected and has a firm grip on policy.”

Peter Boockvar, chief investment officer at Onepoint BFG

“Markets are responding in kind on the belief that of the Fed Chair candidates, we’re about to get the more hawkish one. The dollar is rallying, precious metals are finally taking a breather after their parabolic run, long rates are higher maybe on the thought that the days of QE are over, and stocks are down but well off their early lows.”

Ian Lyngen, head of US rates strategy at BMO Capital Markets

“It is a moderate bear steepener — and we’ve already seen that priced in. The logic is that investors view Warsh as less likely to use the Fed’s balance sheet to influence longer dated Treasury yields. It hasn’t changed our outlook for the Fed — still 50-100 basis points of cuts this year depending on how the data develops. Warsh is a good choice for Fed credibility.”

Valentin Marinov, head of G-10 FX research & strategy at Credit Agricole

“Key would be how ‘accommodating’ Warsh will prove to be. He hasn’t been that vocal about his more recent views and his next few appearances and his nomination hearing will garner a lot of attention as a result.”

Mark Dowding, CIO of BlueBay Asset Management

“The presumption is that he will seek to justify a dovish stance, advancing the notion that AI productivity gains will ensure inflation is held in check. Consequently, futures markets continue to price two cuts from the Fed this year, as has been the case for a number of months.

Relative to some of the other potential picks, it is possible that Warsh is seen as less dovish than some. In prior meeting with others at the Fed, there is a sense that Warsh is well respected and not a Fed Chair likely to represent a threat to the Fed’s independence.”

Elias Haddad, global head of markets strategy at BBH

“If Warsh’s Fed policy vision is implemented, the US yield curve could steepen further as short rates fall, while longer-term rates may stay sticky or even drift higher due to lack of US fiscal credibility.”

Krishna Guha, head of central bank strategy at Evercore ISI

“The Warsh pick should help stabilize the dollar somewhat and reduce (though not eliminate) the asymmetric risk of deep extended dollar weakness by challenging debasement trades – which is also why gold and silver are sharply lower.

But, we advise against overdoing the Warsh hawkish trade across asset markets – and even see some risk of a whipsaw. We see Warsh as a pragmatist not an ideological hawk in the tradition of the independent conservative central banker.”

Michael Metcalfe, senior managing director and head of macro strategy at State Street Bank & Trust Co

“Of the potential pool of candidates, Warsh has always been the most vocal about reducing the size of the Fed’s balance sheet over time, so while he may favor further cuts in Fed funds, his appointment may maintain pressure on longer-dated yields while also reducing the need for hedges against much higher inflation in the future due to potential fears of debt monetization.”