Markets Tumble on Trump's Fed Pick: Warsh Nomination Sends Stocks, Metals Lower
Financial markets recoiled Friday following President Donald Trump's surprise nomination of Kevin Warsh as the next Chair of the Federal Reserve. The move, seen as a sharp critique of current Chair Jerome Powell, triggered a sell-off in equities and a historic plunge in gold and silver prices.
The Nasdaq Composite (COMP) dropped 0.8%, while the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) fell 0.6% and 0.5%, respectively. The materials sector was hardest hit. The dramatic shift, however, was in the commodities space: gold tumbled 9.4% to breach the $5,000-per-ounce support level, and silver cratered 28%, both retreating sharply from recent record highs as the U.S. dollar strengthened.
Trump's selection of Warsh, a Fed governor from 2006 to 2011, sets the stage for a potential philosophical overhaul at the world's most influential central bank. Known for his earlier hawkish views, Warsh has recently aligned with the administration's calls for more aggressive rate cuts, raising immediate questions about the Fed's cherished independence.
"The market is pricing in a more politicized Fed," said D.A. Davidson in a client note. "The prospect of new leadership unequivocally boosted the dollar and smashed gold, which had been riding a wave of institutional safe-haven demand."
The nomination comes amid persistent tension between Trump and Powell, whom the president has repeatedly criticized for not cutting interest rates more deeply. The Fed held rates steady this week after three consecutive cuts in 2023, even as St. Louis Fed President Alberto Musalem cautioned it would be "unadvisable" to ease policy further with inflation still above target.
Elsewhere, West Texas Intermediate crude oil fell 1.1%, pressured by potential diplomatic overtures to Iran that could ease supply fears. Treasury yields were mixed.
Corporate earnings also moved individual stocks. American Express (AXP) shares fell 3.1% after a Q4 earnings miss, while Visa (V) dropped 2% on a softened revenue outlook. Verizon Communications (VZ) surged 10%, leading the Dow gainers after posting strong subscriber growth and an upbeat annual forecast.
The economic data front provided another complication, as December Producer Price Index growth unexpectedly accelerated, driven by the largest jump in service costs since July.
Market Voices
Eleanor Vance, Portfolio Manager at Clearwater Capital: "This is a seismic shift in expectations. Warsh's nomination signals a Fed that may prioritize growth over inflation containment in the near term. The metals plunge reflects a rapid unwinding of 'insurance' trades against central bank policy uncertainty."
Marcus Thorne, Independent Financial Analyst: "It's a dangerous gambit. Undermining Fed independence to chase lower rates risks unanchoring inflation expectations long-term. Today's PPI data is a warning flare the market is ignoring in its knee-jerk reaction."
Rebecca Choi, Retail Investor: "I'm furious. My precious metals ETF got decimated in hours based on one man's appointment. This feels less like investing and more like being a pawn in a political game. The rules keep changing for the little guy."
David Park, Economics Professor at Carlton University: "The reaction is overstated but understandable. Warsh is a known quantity with institutional experience. The real test will be his Senate confirmation hearings and how he delineates his personal views from the Fed's consensus-driven mandate."