Will Trump’s pick to lead US central bank get him the change he wants?

The acceptance of Warsh is partially a gamble that a Fed with him in charge might not change much.

After all, despite Trump’s complaints, the Fed cut interest rates three times last year and most analysts expect additional cuts this year – regardless of what Trump thinks.

That’s good news for borrowers in the US, who may see lower rates on mortgages, car loans and other kinds of debt – and maybe for the president too, if this makes people feel better about the economy.

It also means Warsh does not necessarily have to surrender his credibility as an independent economist to deliver lower interest rates for Trump.

Where differences might be felt more is in other parts of the Fed, which Warsh has accused of “mission creep” and taking on too big a role in the economy.

He wants to reduce its role in bank regulation and cut back study of issues like climate change – putting him in alignment with the White House.

He, like Treasury Secretary Scott Bessent, is a fierce critic of the interventions the Fed made in markets after the 2008 financial crisis and again during the Covid-19 pandemic, which has left the bank with huge holdings of Treasuries and mortgage-backed securities.

Warsh maintains these policies prop up the stock market and other assets – benefiting the wealthy and big financial interests rather than the mainstream economy – and has called for reducing those holdings and coordinating their management more closely with the Treasury Department.

Whether he would actually lead the Fed to shrink its balance sheet more quickly than the bank has been doing is unclear. One effect of doing so could be higher borrowing costs – exactly the opposite of what Trump wants to see.

On Friday, gold prices dropped and the dollar gained, suggesting traders see Warsh as likely to stick to his initial instincts as a “hawk” who favours higher interest rates.

Narayana Kocherlakota, a finance professor at the University of Rochester, who served on the Fed with Warsh, said he thinks he would go against the president if conditions called for it.

“He’s very smart and he’s very independent. And I think that’s the kind of person that Americans should want at the head of their central bank,” Kocherlakota said.

Others argue Warsh’s thinking on the economy has evolved to be closely aligned with Trump, including downplaying concerns that rapid growth and rising wages could fuel inflation.

“Warsh is not the Fed’s guy, he is Trump’s guy, and has shadowed Trump on monetary policy almost every step of the way since 2009,” wrote Thierry Wizman, global foreign exchange and rates strategist at Macquarie Group.

For now, Warsh may look like the candidate most likely to satisfy all parties.

But Trump’s swift turn on Powell – his last pick for Fed chair – should serve as a cautionary reminder.

Reporting contributed by Danielle Kaye, Daniel Bush and Jonathan Josephs