Markets Slip as Trump's Fed Chair Pick Stokes Policy Uncertainty
Wall Street closed lower on Friday, with the S&P 500 notching its third consecutive decline, as President Trump's selection of former Fed Governor Kevin Warsh to chair the central bank injected fresh uncertainty into the outlook for monetary policy.
The benchmark S&P 500 fell 0.4% to close at 6,939. The Dow Jones Industrial Average dropped 0.4% to 48,892.5, and the technology-heavy Nasdaq Composite shed 0.9% to finish at 23,461.8. The session concluded a mixed week and a positive month for major indices, with the Dow gaining 1.7% in January.
The market's immediate reaction appeared to reflect a recalibration of expectations. While Warsh, who served on the Fed's board from 2006 to 2011, is seen as sympathetic to the President's desire for lower rates in the near term, analysts were quick to note that his historical stance and the Fed's consensus-driven nature could temper dramatic shifts. "Warsh's past criticism of quantitative easing paints him as more hawkish than other potential candidates," noted a Saxo Bank report, referring to policymakers who prioritize inflation control.
The nomination comes amid a delicate moment for the U.S. economy. The Fed held rates steady this week after a series of cuts last year, even as inflation persists above its 2% target. Comments from St. Louis Fed President Alberto Musalem on Friday underscored the internal debate, stating it would be "unadvisable" to ease policy into accommodative territory now, though he left the door open to cuts under specific conditions.
"The market is grappling with two narratives," said Michael Chen, a portfolio manager at Horizon Capital in New York. "One is a chair nominee who may favor a dovish tilt to please the White House. The other is a sitting Fed that remains data-dependent and wary of declaring victory over inflation. This ambiguity is the recipe for the volatility we're seeing."
In other markets, precious metals retreated sharply from recent highs, with gold and silver falling 8.9% and 27%, respectively. The U.S. dollar strengthened. Oil prices edged higher, supported by geopolitical tensions, heading for weekly gains.
Corporate earnings also drove individual stock moves. Visa and American Express shares fell on disappointing outlooks, while Verizon Communications soared nearly 12% after posting strong subscriber growth and an upbeat forecast. Deckers Outdoor surged 20% on raised price targets following a robust quarterly report.
Market Voices
Linda Rodriguez, Chief Strategist at Clearwater Advisors: "This isn't just about one person. The focus should be on the composition of the entire FOMC. Warsh's ability to enact change will be constrained by the committee's prevailing view. The sell-off seems overdone, reflecting short-term nerves rather than a fundamental reassessment."
David Feldstein, Independent Trader: "It's a circus. The President is trying to install a yes-man at the Fed to juice the markets before the election, blatantly undermining its independence. Investors are right to be spooked. This politicization is a long-term negative for market stability and the dollar's credibility."
Sarah Prentiss, Economics Professor at Carlton University: "Warsh's experience during the financial crisis is invaluable. His skepticism of unconventional tools like QE could bring a necessary balance to the discussion, especially with the Fed's balance sheet still bloated. The market's initial reaction is typical knee-jerk volatility."
James Koh, Retail Investor: "I'm just tired of the whiplash. Every headline from Washington causes a swing. One day it's trade, the next it's the Fed. It feels impossible to build a sensible long-term strategy when the rulebook is being rewritten by tweet."