Trump’s choice for the Fed: what Warsh’s nomination means

Warsh, a former Fed governor (2006-2011) and Hoover Institution fellow, is respected for his first-hand experience during the financial crisis and his early objections to extended quantitative easing. Though well connected on Wall Street and within the Trump administration, he is seen as more hawkish and institutionally conservative than other candidates such as Kevin Hassett or Rick Rieder.

Warsh advocates a “narrow central bank” focused on inflation and employment, favouring a smaller quantitative footprint outside crises. He is sceptical of standard macroeconomic modelling and emphasises forward-looking supply-side dynamics, with strong belief in technology-driven growth and productivity gains. He argues that a smaller balance sheet would improve policy clarity and enable lower rates. Furthermore, he considers the post‑pandemic inflation surge a policy choice rather than solely an unforeseen supply shock, implying limited tolerance for inflation overshoots. This makes him cyclically dovish but structurally more hawkish.

Warsh is a strong advocate of central bank independence, which he sees as a means to deliver target-consistent policy outcomes rather than an end in itself. He argues that growing central-bank dominance and mission creep since the financial crisis have contributed to systematic policy errors. To preserve independence and mitigate the risk of further credibility erosion, he favours streamlined communication, less emphasis on near-term forecasting and data dependence, discontinuing explicit forward guidance, and rolling back politically charged interpretations of the mandate, including climate themes or inclusive employment.

Despite the Chair’s prominence, decisions remain committee-driven. Warsh may struggle to convince the FOMC to ease policy unless inflation moves more clearly towards target or the labour market weakens further. With Warsh set to take Stephen Miran’s seat, the FOMC also loses its most dovish and Trump-aligned member. We continue to expect a final rate cut in this cycle in Q2.

Senate confirmation is not guaranteed. Republican Senator Thom Tillis has pledged to oppose confirmation in the Banking Committee until a Department of Justice investigation into Jerome Powell is resolved. As the Republicans have only a narrow majority, this stance could effectively block progress. Nevertheless, we expect Warsh’s strong support within Senate Republicans to allow him to take office in May.

Warsh is the least dovish of the main contenders, implying a potentially less accommodative medium-term policy stance than expected, especially regarding quantitative measures and the Fed’s footprint in bond markets. At the same time, his nomination eases concerns about a rapid erosion of Fed independence – a supportive factor for asset markets.