Trump to announce former Fed governor Kevin Warsh as Fed chair

(Sharecast News) - US President Donald Trump is widely expected to announce on Friday that former Fed governor Kevin Warsh will replace Jerome Powell as the next chair of the Federal Reserve. Warsh served as Fed governor between 2006 and 2011. According to Polymarket, the world's largest prediction market, there is a 94% chance that he will be nominated.

According to the Financial Times, Donald Trump said at a Kennedy Center event in Washington on Thursday that he would announce his pick for Fed chair "tomorrow morning".

"A lot of people think that this is somebody that could have been there a few years ago," the president said. "It's going to be somebody that is very respected, somebody that's known to everybody in the financial world."

Kathleen Brooks, research director at XTB, said Warsh was a renowned hawk when he was a Fed governor. However, "he has recently aligned himself with President Trump and called for lower interest rates," she said.

"He was also in favour of shrinking the Fed's balance sheet when he was on the FOMC, which the Fed recently stopped.

"This is an interesting pick from the President and may give the market some hope that Fed independence will be preserved by elevating a former Fed insider. US Treasury yields are higher in early trading, as the market focuses on Warsh's hawkish past.

"It is worth noting that the nominee could face a complicated path to getting confirmed by the Senate, after both Democrats and Republicans have called for Fed independence to be maintained over the will of the President."

ING said Warsh would be a lifeline for the dollar.

"The dollar has been waiting for a catalyst for a recovery, and the news that Kevin Warsh is likely to be announced as the new Federal Reserve Chair nominee today offers exactly that," it said.

"Warsh has been amongst the most market-friendly candidates, as he is a former Fed governor with a history of hawkish views, especially on balance sheet reduction. Given how adamant Trump has been on reducing rates, it's safe to assume Warsh has taken a more dovish stance during the interview process - but this pick may suggest a desire to calm speculation on Fed independence loss."