Washington (United States) (AFP) – Former Federal Reserve governor Kevin Warsh is a safe pair of hands to steer the US central bank, analysts said Friday, flagging his track record on Wall Street and with the Fed. Gold and silver prices already started sliding on reports that Donald Trump would nominate Warsh — a plan the president swiftly confirmed — with the drop in safe haven investments pointing to reassurance among investors.
What do economists, industry players, and policymakers say about Warsh’s emergence as the next Fed chairman?
– ‘Experienced and tested’ –
“President Trump has chosen an experienced and tested policymaker who previously served at the Fed during one of its most challenging moments,” said American Bankers Association president Rob Nichols. He added that Trump’s choice “has a deep understanding of monetary policy, markets, and the important role the nation’s banks play in the economy.” Warsh’s term as Fed governor saw him work closely with then chief Ben Bernanke on the central bank’s policy responses during the financial crisis that rocked the global economy in 2008. He emerged as a key communications conduit between policymakers and financial markets. Banking group UniCredit said that Warsh brings “experience and credibility” at a time when Fed independence from politics is under threat. “Warsh will likely be seen by markets as a safe pair of hands,” UniCredit said.
– ‘Critical thinker’ –
Jeffrey Roach, chief economist at LPL Financial, expects Warsh is unlikely to “act as a yes-man” for the president. Warsh is “known as a critical thinker” who is “willing to rethink convention,” Roach said. UniCredit noted that towards the end of Warsh’s stint as Fed governor between 2006 and 2011, he became “very critical of the Fed and ended up resigning because of his objections to quantitative easing.” Republican Senator Thom Tillis added on social media that he saw Warsh as “qualified.” But Tillis — a member of the Senate Banking Committee — has vowed to block the confirmation of Fed candidates until a Justice Department inquiry into Fed Chair Jerome Powell is resolved. Jason Furman, who served as a top economic adviser to former US president Barack Obama, said that “Warsh is well above the bar on both substance and independence” to lead the Fed.
– Dollar recovery –
The US dollar moved higher on Friday after Trump announced his pick of Warsh. “The dollar has been waiting for a catalyst for a recovery,” said FX strategist Francesco Pesole of ING in a note, adding that news of Warsh’s planned nomination “offers exactly that.” “Warsh has been amongst the most market-friendly candidates, as he is a former Fed governor with a history of hawkish views” on keeping inflation in check, Pesole said.
– Data-dependent? –
While Warsh might have taken a more “dovish stance” on inflation during his interview process, “this pick may suggest a desire to calm speculation on Fed independence loss,” according to Pesole. JPMorgan also noted that Warsh’s stance seems to have shifted to a position that happens to align with the Trump administration’s preferences. “Doves” are seen to favor lower interest rates to boost the economy while “hawks” are inclined towards higher rates to curb inflation. “The first set of questions that the Warsh nomination poses is what his true leanings are and how long will they persist,” said JPMorgan economist Michael Feroli. Feroli expects Warsh will make the case for rate cuts this year but flagged the chance that Warsh’s inclinations might be “more open to revision” later on, especially after the US midterm elections this year.
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