Trump’s Fed Pivot

Donald Trump’s move to nominate Kevin Warsh as the next head of the US central bank landed quietly. Markets didn’t surge or sink. Instead, expectations reset.

With current Chair Jerome Powell due to step down in May, investors see Warsh as a steady option rather than a wildcard.

Change is coming, but the rules of the game look familiar.

Why this matters…

Trump originally appointed Jerome Powell, but the relationship cooled as interest rates stayed higher for longer than the White House wanted. Recent headlines around Fed leadership added uncertainty about who would be in charge next.

Warsh’s nomination has eased fears of a sudden or extreme policy shift. Even if Powell remains on the Fed’s board, the Chair plays a key role in setting direction and markets responded to that signal of stability.

Meet Kevin Warsh

Kevin Warsh previously served as a governor at the Federal Reserve from 2006 to 2011. Before that, he worked in investment banking.

He was closely involved during the global financial crisis, helping keep communication flowing when markets were under severe stress.

Since then, Warsh has argued the Fed should be cautious about relying on money creation and emergency style support. More recently, he’s said improvements in technology and productivity could allow interest rates to fall without pushing prices higher again.

In short, markets see him as experienced, independent and cautious.

Market reaction

On his nomination, price moves were modest but meaningful.

US share markets fell slightly, led by technology stocks. At the same time, the US dollar strengthened.

Gold and silver sold off sharply as investors reduced demand for defensive assets. Month-end portfolio rebalancing by large investors, along with profit-taking after a strong rally earlier in the month, likely added to the size of the move.

Bond markets were mostly steady, suggesting investors don’t expect abrupt changes to interest rates.

What investors are thinking

Markets are expecting broadly similar policy, with a firmer focus on keeping inflation under control.

Warsh’s track record of pushing back against easy money reassured investors concerned about political pressure on the central bank. With no confirmed legal action affecting current Fed leadership, some of the biggest unknowns faded.

That confidence helped support the US dollar and reduced the need for protection against worst case outcomes.

What this could mean for interest rates

US interest rates are currently around 3.5% to 3.75%. Markets expect rates may fall gradually over the next couple of years, but not return to the near-zero levels of the past.

Economic growth has remained solid as businesses become more efficient. At the same time, trade policy and government decisions could slow the pace at which inflation falls.

Warsh has also pointed out the Fed still holds a large amount of bonds from earlier stimulus programs. Reducing those holdings could keep longer-term borrowing costs higher, even if official rates edge lower.

What it could mean for your investments

Banks: When longer-term rates stay higher than short-term rates, bank lending can become more profitable.

Tech stocks: Higher interest rates tend to reduce the value investors place on future growth.

Gold: If confidence in the Fed holds, one of the drivers of the recent rally, as a safety play may fade.

What to watch next

The nomination has eased some uncertainty, but the next steps matter more.

Markets will be watching how quickly Warsh is approved, what he says about reducing Fed support and how inflation data evolves.

Those signals are likely to shape market behaviour over the year ahead.

This is general information only and does not consider your personal circumstances.

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