I'm Confident Warsh Will Be a Good Fed Chair says Former Atlanta Fed President

Donald Trump named Kevin Warsh to be the next chair of the Federal Reserve, ending months of speculation over who’d take charge of US interest rates as the president pushes for big cuts.

Trump elevated Warsh, who’s advised him on economic policy and previously served as a Fed governor, to succeed Jerome Powell when his term at the helm ends in May. It marks a comeback for Warsh, 55, who’s called for a major overhaul of the Fed but was passed over for the top job in 2017 when Trump opted for Powell. Dennis Lockhart, Former Atlanta Fed President joins Bloomberg Intelligence to discuss.

A Federal Reserve led by Kevin Warsh would likely boost volatility in the US Treasury markets due to the central bank’s reduced public communications, according to Morgan Stanley.

Warsh, nominated by President Donald Trump to succeed Jerome Powell in May as chair, served as a governor at the Fed from 2006 to 2011. A Morgan Stanley review of Federal Open Market Committee transcripts from that time reveals that Warsh wanted investors to develop their own opinions on economic growth, inflation and monetary policy.

“Warsh didn’t like to keep the market beholden to the Fed’s view,” strategists Matthew Hornbach and Martin Tobias wrote in a Jan. 30 note, adding that “he won’t necessarily reinforce the markets’ view if it differs from his.”

Over the past year swings in the market in reaction to US interest rates have plummeted even as the absolute level of Treasury yields have fluctuated alongside shifts in economic growth, the labor market and inflation. That’s in large part because of the expected — and communicated — stability in the Fed’s policy path.

Fed Chair Powell, as recently as October, described the central bank’s monetary policy as “more effective when the public understands what the Federal Reserve does and why.” The central bank held rates steady last month; traders don’t see officials shifting benchmark borrowing costs again until July at the earliest.

Since Warsh’s nomination, traders have mostly focused on his stance on the Fed’s balance sheet or appropriate level for policy rates. At Morgan Stanley, Hornbach and Tobias, for one, see the former governor’s preference for a “smaller balance sheet footprint” boosting longer-term Treasury yields relative to short-term ones, a so-called steepening of the curve.

Read More: Warsh Return Renews Tension on Fed $6.6 Trillion QE Hangover

But in the bank’s view, possible changes in Fed communications under Warsh that could heighten investor uncertainty are also key. Among them would be reduced interaction by Fed officials with the media, particularly in advance of FOMC meetings and the removal of the dot-plot forecasts or Summary of Economic Projections.

“The potential for more monetary policy surprises and less consensus among investors about its future path should raise realized volatility,” Hornbach and Tobias said.

Still, not all investors are convinced that a Warsh Fed will necessarily mean a more volatile Treasury market, if only because Warsh may be more amenable to coordination among all Fed board members compared with other individuals Trump considered for the top central bank job.

“Over the course of 2026, Warsh might have the best chance of the recent candidates to create a bit more consensus than has been the case of late,” said Jeffrey Palma, head of multiasset solutions at Cohen & Steers Inc., which manages more than $90 billion in assets. “He’s more likely to be reactive and responsive to data than overly ideological.”

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