Contentious Confirmation Hearing Expected for Warsh, Says Claudia Sahm

Claudia Sahm, Chief Economist at New Century Advisors, discusses Kevin Warsh's history on the Federal Reserve board and what he might bring to the table as Fed Chair.

Wall Street investors and strategists said that President Donald Trump’s pick of Kevin Warsh to lead the Federal Reserve is a relatively hawkish choice, likely to resist balance-sheet expansion which will support the dollar and a steeper Treasury yield curve.

If confirmed by the Senate, Warsh — despite his track record of often supporting higher interest rates because of fears of inflation — will need to navigate a president who in his second term has pilloried Fed officials for not easing policy as aggressively as he would like. The dollar gained and the Treasury curve steepened.

Across Wall Street and among global investors, Trump’s pressure campaign to lower borrowing costs has sparked concerns about the independence of the central bank in setting benchmark interest rates that shape the cost of borrowing in markets around the world.

“Markets are responding in kind on the belief that of the Fed Chair candidates, we’re about to get the more hawkish one,” said Peter Boockvar, chief investment officer at Onepoint BFG.

Bloomberg’s dollar gauge rallied Friday morning in New York after Trump announced the post on social media. Short-term Treasury yields fell while those on longer tenors rose. US stock futures slipped alongside precious metals prices.

Warsh, who served on the Fed’s Board of Governors from 2006 to 2011, would succeed Jerome Powell. Wall Street market-watchers also noted that the incoming Fed chair will need to forge a consensus on rate policy across the Federal Open Market Committee’s 12 voting members. Powell, who Trump appointed as chair in 2017, will step down as chair on May 15, though his term as a governor of the Federal Reserve board will run until 2028.

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