Why is Trump's Fed chair pick Kevin Warsh seen as bad news for precious metals, commodities, Bitcoin, equities?

Kevin Warsh

• Trump nominates Kevin Warsh as next US Fed chair, seen as a moderate choice.
• Gold prices fell over 4% on fears of a more hawkish Fed stance.
• Sensex and Nifty ended lower, dragged by metal and IT stocks.

Did our AI summary help?

US  President Donald Trump on Friday announced former Federal Reserve Governor Kevin Warsh as the next head of the U.S. central bank.

Warsh is widely regarded as a moderate option—as one of the less radical choices and is known for a measured approach to policy, particularly his reluctance to rely on aggressive monetary stimulus even though he favors lower interest rates.

Trained as a lawyer and currently a distinguished visiting fellow in economics at Stanford University’s Hoover Institution, Warsh has argued that the president is justified in urging the Federal Reserve to cut rates sharply. He has also faulted the Fed for failing to fully appreciate how productivity gains—especially those driven by advances in artificial intelligence—could help contain inflation.

In addition, Warsh has advocated a sweeping restructuring of the central bank, including a significant reduction of its balance sheet and a loosening of regulatory constraints on banks.

Trump’s move to nominate a successor to Powell, subject to Senate confirmation, takes place against the backdrop of unusually intense efforts by a president to influence the traditionally independent Federal Reserve.

A sharp profit booking was witnessed in metal stocks, amid concerns that the US central bank could adopt a more hawkish policy stance.

Gold prices fell over 4 percent on fears that a tougher approach on interest rates could emerge under the next Fed leadership. A hawkish Fed stance typically supports the US dollar and tightens global liquidity conditions, which tends to weigh on commodities and emerging market assets.

"So, a potentially less dovish Fed chairman pick, a rebound in the dollar and gold giving way to overbought conditions have contributed to the decline in the price of the precious metal," Reuters quoted KCM Chief Trade Analyst Tim Waterer as saying.

Matt Simpson, senior analyst at StoneX, said rumours that Kevin Warsh may replace Jerome Powell as Fed chair weighed on gold prices during Asian trade.

Expectations of monetary easing have also been scaled back, putting pressure on growth-sensitive assets such as cryptocurrencies. Tighter liquidity and higher interest rates reduce investor appetite for risk assets like Bitcoin, which typically benefit from abundant liquidity and lower borrowing costs.

"Concerns around heavy AI investment by Big Tech, without the corresponding earnings to justify the spend, appear to be unsettling broader risk assets," said Matt Howells-Barby, vice president at crypto exchange Kraken. "With credit spreads already extremely tight, markets were firmly risk-on going into this move, so it’s not surprising to see investors pause and reassess their risk appetite.”

The prospect of a more hawkish Federal Reserve has also weighed on equities, as tighter monetary conditions can raise funding costs and slow economic growth, further dampening sentiment across global markets.

The benchmark equity indices Sensex and Nifty settled lower on Friday, snapping a three-day rally, dragged by metal, IT stocks. The Sensex declined 296.59 points or 0.36 percent to settle at 82,269.78. During the day, it tumbled 625.34 points or 0.75 percent to 81,941.03. The pan-European Stoxx 600 was last 0.47% higher and was on track to end January up close to 3%.

In Asian markets, South Korea's Kospi settled higher, while Japan's Nikkei 225 index, Shanghai's SSE Composite index and Hong Kong's Hang Seng index ended lower.

US markets ended mostly lower on Thursday.

Nasdaq 100 futures were down nearly 1 percent, while S&P 500 futures slipped about 0.8 percent. Dow Jones Industrial Average futures were also lower by around 0.8 percent.

(With inputs from Reuters)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.