Dollar, Yields Climb as Trump Nears Fed Chair Pick, With Warsh Seen as Front-Runner
(Market Watch) -- Financial markets shifted abruptly on Friday as speculation solidified that President Donald Trump will name Kevin Warsh as the next Chair of the Federal Reserve. The dollar strengthened across the board and U.S. Treasury yields pushed higher, reflecting investor anticipation of a less accommodative monetary policy stance.
The greenback posted gains against all major currencies, while the benchmark 10-year Treasury yield rose three basis points. Sources close to the selection process indicate Trump has settled on Warsh, though they caution a formal announcement is pending. The President teased the decision late Thursday, hinting his pick was a known quantity who "could have been in the position years ago."
"The market is reading this as a signal of continuity and a more traditional, rules-based approach," said Andrew Ticehurst, a senior strategist at Nomura in Sydney. "A Warsh-led Fed is perceived as less dovish, which translates into expectations for a shallower rate-cutting cycle ahead."
The moves cap months of uncertainty over who will succeed Jerome Powell when his term ends in May. Warsh, a Fed governor from 2006 to 2011 and an occasional advisor to Trump, was among a shortlist of four candidates. His odds on prediction markets surged above 80% in Asian trading, overtaking earlier favorite Rick Rieder of BlackRock, whose perceived dovishness had recently spurred flows into rate-cut bets.
Analysts point to Warsh's record as a critic of quantitative easing and his emphasis on fiscal discipline. "Markets have a long memory," noted Sean Callow, senior analyst at ITC Markets. "Warsh's hawkish pedigree is being priced in immediately, hence the lift in the dollar and yields."
The potential nomination arrives at a delicate juncture. Concerns over political influence on the Fed, soaring U.S. deficits, and erratic policymaking have weighed on the dollar this year, pushing a key Bloomberg index to a near four-year low. A Warsh appointment is seen by some as a bulwark against those pressures.
"This would be a move to reassure markets about the Fed's independence and its commitment to orthodox policy," said Moh Siong Sim, a currency strategist at OCBC Bank in Singapore. "It could firm up the dollar by dialing back fears of an overly politicized or accommodative central bank."
The reaction was notably pronounced in Asia, where an unusual steepening of the Treasury yield curve suggested regional investors were hastily repositioning. "This isn't typical Asian-hours activity," observed Mark Cranfield, a markets strategist. "It looks like a defensive adjustment for a potentially more hawkish Fed regime."
Market Voices: Reaction & Analysis
Janet Fowler, Portfolio Manager at Horizon Advisors (New York): "This is a stability play. Warsh represents a known entity from the Bernanke era. After years of extraordinary stimulus, the market is craving predictability. His selection would signal a return to a more conventional policy framework, which is ultimately positive for the dollar's role as a reserve currency."
David Chen, Independent Macro Analyst (Hong Kong): "The knee-jerk rally in the dollar makes sense, but let's not overstate it. The structural pressures—the deficits, the debt, the global dedollarization trend—haven't vanished. This might offer a temporary reprieve, but the long-term challenges for U.S. fiscal and monetary policy remain profound."
Rebecca Vance, Editor at 'The Fiscal Times' Newsletter (Austin, TX): "It's utterly baffling. Trump is reportedly picking a man who spent years warning about the dangers of the very policies Trump himself championed—massive tax cuts and ballooning debt. Warsh has written extensively on fiscal recklessness. Is this a genuine change of heart from the President, or just another chaotic episode? The credibility gap is staggering."
Michael Torres, Chief Economist at Granite Peak Research (Boston): "The market's focus on hawkish versus dovish is simplistic. The real question is operational independence. Warsh's experience inside the Fed and his public writings suggest a deep institutionalist. In the current climate, that may be his most valuable attribute—rebuilding the firewall between the White House and the Eccles Building."