Donald Trump expected to nominate Kevin Warsh as US Federal Reserve chair | Federal Reserve

Donald Trump is expected to nominate former Federal Reserve governor Kevin Warsh as the next president, amid an extraordinary bid to tighten his grip on the US central bank and flout its longstanding independence.

Trump told reporters on Thursday that he plans to announce his pick for the Fed chair on Friday morning, implying that “a lot of people think this is someone who could have been there a few years ago.”

This fueled speculation that he had chosen Warsh, who was considered for the Fed chair in 2017. There has been a surge in betting on the Polymarket prediction site that Warsh will be nominated, where his chances rose to 94% on Friday.

The Financial Times reported Friday that Trump was preparing to nominate Warsh, citing three people familiar with the matter.

Being chairman of the Fed is one of the most powerful roles in the U.S. government and has enormous influence over the world’s largest economy.

If confirmed by the Senate, Warsh would replace Jerome Powell, whom Trump first appointed in 2018 but later infuriated the US president by defying his repeated calls to lower interest rates.

Warsh, a New Yorker who was a special assistant for economic policy from 2002 to 2006, served as Fed Governor from 2006 to 2011, which included the response to the global financial crisis, and was the Fed’s representative of the G20 group of countries.

He currently teaches at the Stanford Graduate School of Business and has held positions at courier UPS, Korean e-commerce company Coupang, and billionaire Stanley Druckenmiller’s investment firm Duquesne Family Office.

Warsh has long criticized the overly loose monetary policy the Fed has pursued since the financial crisis, including the central bank’s expanded balance sheet. He has previously been seen as a monetary policy hawk but appears to have backed the White House’s push to lower borrowing costs.

In December, Trump said of Warsh:: “He thinks you should lower interest rates.”

The dollar strengthened following the expected candidacy reports. The US dollar index, which measures its strength against a basket of six currencies, rose 0.4%.

Warsh would be a “relatively safe choice,” according to Stephen Brown, vice president of North America economist at Capital Economics.

Warsh, he said, “will probably be one of the better outcomes for investors compared to other competitors that are in the running.” Warsh’s long-standing hawkish views should help dispel concerns that he could turn into a full-blown Trump stooge.

“However, his firm belief that both AI and the Trump administration’s regulatory moves will help reduce inflation, along with his long-held view that the Fed should operate with a much smaller balance sheet, risks some upward pressure on long-term bond yields.”

The long-awaited announcement comes at a worrying time for the Fed. It’s notable that Warsh is on the shortlist of candidates who universally embrace Trump’s belief that rates should be much lower than they are now.

Lower rates can stimulate investment and economic activity, while running the risk of causing inflation. Fed officials such as Powell took a cautious approach to setting borrowing costs, but Trump claimed that not lowering interest rates was costly to the United States.

Under Powell’s leadership, the Fed challenges Trump; she refuses to set rates according to his whims, and as a result becomes the target of the president’s ire.

But the Fed has forced Trump to grapple with the limits of his executive authority during a seemingly limitless period. Economists say an independent central bank is necessary to keep the economy stable, ignoring short-term political factors and focusing on the long term.

Powell’s term as Fed chairman will end in May. The central bank appears poised to receive special protection from the high court because of its role in the U.S. economy, even though Trump considered firing it last year and tried to remove another Fed official. Wall Street also maintains the Fed’s independence: Stocks fell significantly last year when rumors circulated that Trump was trying to fire Powell.

However, this protection made the president even more angry. In early January, Trump’s Justice Department opened a criminal investigation into Powell over renovations at the Fed’s headquarters.

Trump claimed that Powell’s over-budget renovations amounted to fraud. Denying any wrongdoing, Powell argued that the justice department’s pursuit was “a result of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the president’s preferences.”

The president’s attacks have so far failed to persuade the Fed to dramatically lower interest rates. But the attacks also damaged business leaders’ and even some Republican lawmakers’ confidence in Trump to protect the Fed’s independence and thus the U.S. economy.

Because of this distrust, it’s unclear how much support Trump will get to secure Warsh’s nomination from the Senate. Thom Tillis, a member of the Senate banking committee and one of a handful of vocal Republican lawmakers, said he would block Trump’s Fed nominations because of the investigation.

Although Powell’s term as chairman is coming to an end, his 14-year tenure on the Fed’s board of governors that sets interest rates will end in 2028. Powell has not yet announced whether he will remain on the board after his term as chairman ends.