Dollar is set for best day since July on Trump's Fed pick

The S&P 500 fell 0.5%. The Nasdaq 100 lost 0.8%. The Russell 2000 slipped 1.5%.

• Stocks fell and the dollar rose after Trump nominated Kevin Warsh as Fed Chair
• Warsh seen as less supportive of deep rate cuts, gold and silver prices plunged
• Warsh's nomination seen as safe, easing worries about Fed independence

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The dollar’s surge toward its best day since July accelerated a plunge in precious metals as President Donald Trump announced his pick for the Federal Reserve’s top job: Kevin Warsh, who’s seen as less supportive of deep rate cuts and more worried about inflation. Stocks fell. Bonds were mixed.

An advance of the greenback against all major currencies trimmed its January slide. Long-term Treasuries underperformed. Money markets didn’t react meaningfully to the announcement, with traders slightly increasing bets on two Fed rate cuts in 2026. A slide in commodity shares and big tech dragged down the S&P 500, which was still set for its best month since October.

Warsh, who served on the US central bank’s Board of Governors from 2006 to 2011 and has previously advised Trump on economic policy, would succeed Jerome Powell when his term at the helm ends in May. It marks a comeback for Warsh, 55, whom the president passed over for the position in 2017 when he selected Powell.

If confirmed by the Senate, the former Fed governor will take charge of US monetary policy at a time when many economists and investors see its traditional insulation from elected officials as being under threat from the White House. Warsh aligned himself with the president in 2025 by arguing publicly for lower interest rates, going against his longstanding reputation as an inflation hawk.

The Warsh pick should help stabilize the dollar some 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, according to Krishna Guha at Evercore.

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

A wave of investor demand into precious metals over the past year has taken out record after record, shocked seasoned traders and driven exceptional price volatility. That only accelerated in January, as investors piled into the time-honored havens amid concerns about currency debasement and the Fed’s independence, trade wars and geopolitical tensions.

The S&P 500 fell 0.5%. The Nasdaq 100 lost 0.8%. The Russell 2000 slipped 1.5%. The yield on two-year Treasuries fell two basis points to 3.54%. Those on 30-year bonds rose three basis points to 4.88%. The dollar climbed 0.6%.

Gold tumbled 8.5% while silver sank 22%. Bitcoin is poised for its worst streak of monthly losses in about seven years.

With five years of history on the Board of Governors under the “Ben Bernanke Fed”, Warsh was known as the “bridge to Wall Street,” according to Jeffrey Roach at LPL Financial.

“Warsh is a safe pick. He’s forthright, willing to rethink convention, and not necessarily a ‘yes-man’,” Roach said. “Investors should be thankful.”

Trump’s nomination of Warsh to be the next Fed Chair is “a relatively safe choice for investors,” with his prior hawkish views counteracting concerns he might morph into a full-blown stooge, according to Stephen Brown at Capital Economics.

“Nonetheless, his desire for the Fed to operate with a smaller balance sheet still presents upside risks to long-term yields,” Brown said. “Moreover, his views downplaying the link between inflation and the pace of economic growth as well as his conviction that AI and the Trump administration’s deregulatory push will hold down inflation means there is a risk of the Fed falling behind the curve in the future.”

The selection of Warsh for the Fed should calm concern about the erosion of independence of the central bank, according to Eric Teal at Comerica Wealth Management.

“His candidacy included prior experience as a Fed Governor and as an investor,” Teal said. “He has been flexible on monetary policy in the past and will likely take the most strategic approach toward the role of the Federal Reserve mission going forward.”

Further deregulation, reducing the balance sheet, and additional rate cuts if inflation continues to moderate should be stimulative for the economy and markets including more value-oriented sectors of the market in the intermediate term, Teal concluded.

“Kevin Warsh as the nominee for Fed Chair means we could actually end up with a Fed that tilts hawkish at the margin,” said Sonu Varghese at Carson Group. “Warsh has historically been a hawk, even though he’s been talking rate cuts lately.

If he walks into the Fed with aggressive cuts as his baseline, he may not have a lot of credibility selling others on the need for further rate cuts, Varghese said. And we may even end up with a deeply divided committee that doesn’t cut at all, he concluded.

In a note titled “Warshing and Waiting,” TD Securities strategists say markets may struggle to pin down Warsh’s view given his notable shift in policy priorities after espousing a very hawkish stance over the last decade.

“Warsh will likely be a proponent of rate cuts in 2026, but the main question is whether his former hawkish persona makes a comeback down the road,” said the TD strategists.

While some market participants may be interpreting Trump’s pick for the Fed as a shift toward a more hawkish policy stance, that reaction may be “overly simplistic,” according to Seema Shah at Principal Asset Management.

“Although Warsh has been critical of the Fed’s reliance on its balance sheet as a stimulus tool, it is unlikely he would have been selected without signaling a willingness to consider additional rate cuts this year,” she said. “His credibility and institutional knowledge should ultimately anchor expectations rather than unsettle them.”

In addition, Shah notes that, his background suggests a strong respect for Fed independence, which makes him far less susceptible to political pressure for aggressive rate cuts when inflation dynamics do not warrant it.

“That commitment to independence should help limit the risk of a selloff at the long end of the Treasury curve and support financial stability,” said Shah. “In the longer run, Warsh’s nomination reinforces the likelihood of policy continuity and institutional credibility. For markets, that steadiness should matter far more than the knee jerk reaction we’re seeing today.”

Warsh brings an unusual combination of hawkish instincts, openness to innovation, and deep respect for Fed independence, according to Dan Siluk at Janus Henderson. His nomination suggests a policy regime that is more flexible on rates, more disciplined on the balance sheet, less communicative in its forward signaling, and influenced by a structural productivity narrative shaped by AI, he said.

“Markets should prepare for a Fed that is simultaneously more unpredictable and more orthodox, a blend that marks a genuine shift in the post‑crisis monetary landscape,” Siluk noted.

For markets, Siluk says the reaction reflects the duality of Warsh’s stance. Front‑end yields have drifted lower on expectations that rate cuts may come sooner than previously projected. Longer‑dated yields have risen, as investors anticipate less willingness to use the balance sheet to suppress term premiums, producing a bear steepening dynamic.