Trump's choice of Warsh to lead Fed could reshape the world's most influential central bank

WASHINGTON (AP) — President Donald Trump's nomination of Kevin Warsh to chair the Federal Reserve could bring about sweeping changes at a central bank that dominates the global economy and markets like no other.

Warsh, if approved by the Senate, will be under close scrutiny from financial markets and Congress given his appointment by a president who has loudly demanded much lower rates than many economists think are justified by economic conditions. Whether he can maintain the Fed's long time independence from day-to-day politics while also placating Trump will be a tremendous challenge.

Still, former associates and friends of Warsh say that he has the intellectual heft and people skills to potentially pull it off. His family also has connections to Trump that could reduce the pressure from the White House.

Warsh has “a judicious temperament and both the intellectual understanding but also the hopefully diplomatic talents to navigate what is a challenging position at this point,” said Raghuram Rajan, an economics professor at the University of Chicago and formerly head of India's central bank.

Warsh would replace current chair Jerome Powell when his term expires in May. Trump chose Powell to lead the Fed in 2017 but this year has relentlessly assailed him for not cutting interest rates quickly enough.

"I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best,” Trump posted on social media Friday. “On top of everything else, he is ‘central casting,’ and he will never let you down.”

Trump said later Friday in the Oval Office that he didn't ask Warsh to commit to cutting rates, calling such a question “inappropriate" and adding, “I want to keep it nice and pure.”

But Trump added, “But he certainly wants to cut rates.”

The appointment, which requires Senate confirmation, amounts to a return trip for Warsh, 55, who was a member of the Fed's board from 2006 to 2011. He was the youngest governor in history when he was appointed at age 35. He is currently a fellow at the right-leaning Hoover Institution and a lecturer at the Stanford Graduate School of Business.

In some ways, Warsh is an unlikely choice for the Republican president because he has long supported higher interest rates to control inflation. Trump, by contrast, has said the Fed’s key rate should be as low as 1%, a level few economists endorse, and far below its current level of about 3.6%.

During his time as governor, Warsh objected to some of the low-interest rate policies that the Fed pursued during and after the Great Recession of 2008-09. He also often expressed concern at that time that inflation would soon accelerate, even though it remained at rock-bottom levels for many years after that recession ended.

More recently, however, in speeches and opinion columns, Warsh has voiced support for lower rates, seemingly coming in line with Trump's point of view.

Markets and members of Congress react

Financial markets reacted in ways that suggest investors expect Warsh could keep rates a bit higher over time. The dollar and yields on long-term U.S. Treasurys ticked higher. U.S. stocks fell about 0.5%. The biggest moves were in the volatile metals markets, where gold dropped more than 5% and silver sank more than 13%.

In Congress, Sen. Thom Tillis, a North Carolina Republican, reiterated in a social media post that he will oppose Warsh's nomination until a Justice Department investigation into Powell is resolved.

Tillis is on the Senate committee that will consider Warsh's nomination.

He added that Warsh is a “qualified nominee,” but stressed that “protecting the independence of the Federal Reserve from political interference or legal intimidation is non-negotiable.”

Tillis’s opposition could complicate the confirmation process. Asked late Thursday whether Warsh could be confirmed without Tillis’s support, Senate Majority Leader John Thune said, “probably not.”

Separately, Democratic Sen. Elizabeth Warren of Massachusetts, the highest-ranking Democrat on the committee, accused Warsh of reshaping his views to appease Trump ahead of his nomination.

“I don’t know how to interpret that, except to say, that’s exactly what a sock puppet does,” she said. “If Donald Trump says it, then Kevin Warsh echoes it, even though it contradicts everything he had done for years.”

Changes coming to Fed?

Warsh has frequently criticized the Fed for its ownership of trillions of dollars in government and mortgage-backed securities, which it accumulated after the Great Recession and during the pandemic.

Warsh has charged that the massive bond-buying, which was intended to lower longer-term interest rates and boost the economy, enabled Congress to ramp up spending without concern for higher borrowing costs.

Reducing the Fed's $6.6 trillion balance sheet, however, will be a fraught exercise because banks have become accustomed to the large amounts of cash in the financial system that it provides.

Warsh has also said the Fed's economic models wrongly assume that rapid economic growth threatens to elevate inflation. Instead, “Inflation is caused when government spends too much and prints too much,” he wrote in a November column in The Wall Street Journal.

Controlling the Fed

The announcement comes after an extended and unusually public search. The chair of the Federal Reserve is tasked with combating inflation in the United States while also supporting maximum employment. The Fed is also the nation’s top banking regulator.

The Fed’s rate decisions, over time, influence borrowing costs throughout the economy, including for mortgages, car loans and credit cards.

Trump has sought to exert more control over the Fed. In August he tried to fire Lisa Cook, one of seven governors on the Fed’s board, in an effort to secure a majority of the board. Cook, however, sued to keep her job, and the Supreme Court, in a hearing last week, appeared inclined to let her stay in her position while her suit is resolved.

Powell revealed this month that the Fed had been subpoenaed by the Justice Department about his congressional testimony on a $2.5 billion building renovation. Powell said the subpoenas were “pretexts” to force the Fed to cut rates.

Trump's economic policies

Warsh has expressed support for the president's economic policies, despite a history as a more conventional, pro-free trade Republican.

In a January 2025 column in The Wall Street Journal, Warsh praised Trump's deregulatory policies and potential spending cuts, which he said would help bring down inflation. He has also suggested that artificial intelligence will boost productivity, making the economy more efficient while reducing inflation. Lower inflation would allow the Fed to lower rates.

In December, Trump wrote on social media of the need for lower borrowing costs and said, “Anyone who disagrees with me will never be the Fed chairman!”

Potential challenges and pushback

If confirmed, Warsh would face challenges in pushing interest rates much lower. The chair is just one member of the Fed’s 19-person rate-setting committee, with 12 of those officials voting on each rate decision. The committee is already split between those worried about persistent inflation, who’d like to keep rates unchanged, and those who think that recent upticks in unemployment point to a stumbling economy that needs lower interest rates to bolster hiring.

Financial markets could also push back. If the Fed cuts its short-term rate too aggressively and is seen as doing so for political reasons, then Wall Street investors could sell Treasury bonds out of fear that inflation would rise. Such sales would push up longer-term interest rates, including mortgage rates, and backfire on Warsh.

Trump considered appointing Warsh as Fed chair during his first term, though ultimately he went with Powell. Warsh’s father-in-law is Ronald Lauder, heir to the Estee Lauder cosmetics fortune and a longtime donor and confidant of Trump’s.

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