Powell Out. Warsh In. What Trump’s Fed Pick Means for Rates and Market

President Donald Trump on Friday formally nominated former Federal Reserve governor Kevin Warsh to succeed Jerome Powell as chair of the U.S. central bank, bringing a turbulent and politically charged transition at the Fed closer to resolution.

The decision concludes a months-long search process that unfolded amid extraordinary pressure on the Federal Reserve, rising concerns over inflation persistence, and growing debate about the future independence of the central bank. Trump announced the nomination in a Truth Social post, praising Warsh as a steady and capable choice during a volatile period for monetary policy.

“I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best,” Trump wrote.

Warsh, 55, is a familiar figure to markets. He served as a Federal Reserve governor from 2006 to 2011, including during the global financial crisis. His prior experience at the Fed and long-standing relationships on Wall Street helped ease investor concerns that the nomination would trigger immediate market instability.

Market Reaction Muted as Investors Favor Familiarity

Financial markets largely took the nomination in stride. Analysts and investors have long viewed Warsh as a credible institutional figure rather than a purely political appointment.

“He has the respect and credibility of the financial markets,” said David Bahnsen, chief investment officer of The Bahnsen Group, speaking on CNBC’s “Squawk Box.”

“There was no person who was going to get this job who wasn’t going to be cutting rates in the short term. However, I believe longer term he will be a credible candidate,” Bahnsen added.

That assessment reflects a broader market consensus. Traders had already been pricing in additional rate cuts later this year, regardless of who ultimately took over as chair. As a result, Warsh’s nomination did not meaningfully alter expectations for near-term monetary policy.

A Long Road to the Nomination

Although the formal selection process began last summer, the push to replace Powell effectively started years earlier. Since Powell’s confirmation as Fed chair in 2018 during Trump’s first term, Trump has repeatedly criticized the central bank for maintaining what he viewed as overly restrictive monetary policy.

Even after the Fed delivered three consecutive rate cuts in the latter part of 2025, Trump continued pressing policymakers to move faster and further. He also publicly criticized Powell over cost overruns tied to the Federal Reserve’s large-scale headquarters renovation in Washington, D.C.

The nomination process itself was unusually broad. At one point, as many as 11 candidates were under consideration. The list included former and current Fed officials, prominent academic economists, and well-known Wall Street executives. Treasury Secretary Scott Bessent led much of the vetting effort, eventually narrowing the field to five, then four finalists. Trump hinted last week in an interview with CNBC that a decision had been made, setting the stage for Friday’s announcement.

Warsh’s View of the Fed and Calls for Change

Warsh has not been shy about his views on the current direction of the Federal Reserve. In a CNBC interview last summer, he argued that the institution has suffered from a loss of credibility and needs a fundamental reset.

He called for “regime change” at the Fed, a phrase that quickly drew attention across financial and policy circles.

“The credibility deficit lies with the incumbents that are at the Fed, in my view,” Warsh said during the July interview.

Those remarks signal potential friction inside an institution that traditionally emphasizes consensus building among governors and regional bank presidents. If confirmed, Warsh would need to balance his desire for reform with the Fed’s culture of internal agreement, especially at a time when political scrutiny of the central bank has intensified.

A Precarious Moment for the Federal Reserve

The nomination comes at one of the most sensitive moments for the Federal Reserve in decades. Inflation has cooled significantly from its post-pandemic highs but remains above the Fed’s long-standing 2 percent target. At the same time, economic growth has slowed, and the labor market has softened into what some economists describe as a no-fire, no-hire environment.

Government borrowing continues to climb, adding further complexity to the Fed’s policy calculus. Against that backdrop, the central bank has also found itself under direct political pressure in ways rarely seen in modern history.

Most recently, the Justice Department subpoenaed Powell in connection with the Fed’s headquarters renovation project. Powell responded forcefully, calling the move a “pretext” aimed at pressuring the central bank to loosen monetary policy further and align more closely with White House preferences.

The episode has fueled renewed debate over Fed independence, a principle widely regarded as essential to maintaining investor confidence and price stability. What had once been a largely academic discussion has now become a practical concern for markets.

Trump and other administration officials have openly floated proposals that would reshape how the Fed operates. These ideas have included tighter White House oversight, changes to the rate-setting process, and even requiring the Fed chair to consult with the president before making major policy decisions.

The Confirmation Fight Ahead

Warsh’s nomination now heads to the Senate, where confirmation is far from guaranteed. Republican Senator Thom Tillis has said he intends to block any Federal Reserve nominations until the Justice Department investigation into the Fed’s construction project is completed.

Beyond the politics, substantive policy questions remain. While Trump has declared inflation defeated, price pressures remain elevated relative to the Fed’s target. Meanwhile, signs of labor market cooling raise the risk of overtightening if policy is not calibrated carefully.

Markets currently expect limited action from the next Fed chair. Futures pricing suggests investors anticipate no more than two additional rate cuts this year, with the benchmark federal funds rate settling near 3 percent. Policymakers have indicated that level aligns with their estimate of the long-run neutral rate, meaning it neither stimulates nor restrains economic growth.

What Happens to Jerome Powell

One of the more unusual uncertainties surrounding the transition involves Powell himself. Historically, Fed chairs who are replaced tend to resign their positions entirely. However, Powell’s situation is different.

Powell still has two years remaining in his term as a Fed governor. He could choose to remain on the board, potentially serving as a counterweight to efforts to weaken the central bank’s independence. Such a move would be unprecedented in recent history and could complicate internal Fed dynamics.

The broader legal backdrop adds another layer of uncertainty. The Supreme Court is currently weighing Trump’s attempt to remove Fed Governor Lisa Cook. The outcome of that case could have far-reaching implications for how much authority a president has over Federal Reserve board members.

Why This Matters for Investors

For investors, Warsh’s nomination represents continuity with a twist. His experience and market credibility reduce the risk of sudden policy shocks. At the same time, his outspoken critiques of the Fed suggest a willingness to challenge established norms.

The bigger story is not just who leads the Federal Reserve, but how the institution navigates growing political pressure while managing inflation, slowing growth, and record government debt. The balance between reform and independence will shape interest rates, asset prices, and economic confidence in the years ahead.

As the confirmation process unfolds, markets will be watching closely not only what Warsh says, but how much room he has to act once in office.

What Happens to Jerome Powell ?.....................

Powell may very well be indicted. He is under investigation and audit for the cost over-runs (700 million dollars) on the renovation of the Fed building.

What to know about the DOJ investigation into Fed Chairman Jerome Powell

**********************************************

................“I would just point to it there’s no VIP dining room,” Powell said. “There’s no new marble. We took down the old marble. We’re putting it back up. We’ll have to use new marble where some of the old marble broke. But there’s no new — there are no special elevators. They’re just — they’re old elevators that have been there. There are no new water features. There’s no beehives and there’s no — and there’s no roof terrace gardens.”

Sen. Tim Scott (R-SC), chairman of the Senate Banking Committee, later followed up with Powell in a letter, saying that the only available construction plans for the building appear to contradict some of Powell’s statements and requested further clarification.

In July, Rep. Anna Paulina Luna (R-FL) submitted a referral to Attorney General Pam Bondi requesting that the Justice Department investigate Powell for accusations of perjury and making false statements to federal officials over his testimony before the Banking Committee.

Luna said at the time that while Powell testified that the renovations were free of luxury features, official project documents contradict the statements.

“These are not minor misstatements,” Luna said in a statement. “Chairman Powell knowingly misled both Congress and executive branch officials about the true nature of a taxpayer-funded project. Lying under oath is a serious offense — especially from someone tasked with overseeing our monetary system and public trust.”

Office of Management and Budget Director Russ Vought also sent a letter to Powell in July, accusing him of having “grossly mismanaged” the central bank.

Vought called the renovations “ostentatious” and said that Powell’s claims in the testimony clashed with details about the project laid out in plans that the Fed had submitted to the National Capital Planning Commission.

“Now up to $2.5 billion, roughly $700 million over its initial cost,” Vought said on social media. “These renovations include terrace rooftop gardens, water features, VIP elevators, and premium marble. The cost per square foot is $1,923 — double the cost for renovating an ordinary historic federal building. The Palace of Versailles would have cost $3 billion in today’s dollars!”

It is unclear if the current Justice Department investigation is tied to Luna’s referral. How big a deal is this?

This is the first time that the chairperson of the Federal Reserve has ever been under criminal investigation.

Mark Hamrick, senior economic analyst at Bankrate, told the Washington Examiner that the intervention was “unprecedented.”

“To me, this is a chilling escalation of a president’s confrontations with the Federal Reserve chair, all of course at the president’s own choosing,” he said. “There’s no positive outcome where the credibility of the Federal Reserve is undermined, and yet it seems as if the president is doing everything that he can, including now using essentially the justice system, to undermine the credibility of the institution and the chair who he initially nominated.”

Hamrick predicted that the move might backfire and cause other members of the Fed’s monetary policy committee to rally around Powell, as they could see the Fed’s independence as under attack.

Also, Powell’s term as chairman is set to expire in a few months. Still, he can remain on the board until 2028, as the Fed board is comprised of multiple governors. He could make the decision to stay on instead of retiring in May. What lawmakers are saying

While Republicans are often reticent to push back on Trump, some in the GOP have come out against the investigation.

Rep. French Hill (R-AR), the chairman of the House Financial Services Committee, called the investigation a “distraction” and said that, despite past policy disagreements, he has found Powell “to be forthright, candid, and a person of the highest integrity.”

“Pursuing criminal charges relating to his testimony on building renovations at a time when the nation’s economy requires focus and creates an unnecessary distraction,” Hill said. “The Federal Reserve is led by strong, capable individuals appointed by President Trump, and this action could undermine this and future Administrations’ ability to make sound monetary policy decisions.”

Retiring Sen. Thom Tillis (R-NC), a member of the Senate Banking Committee, vowed to block Trump’s nominees to the Fed and whoever he nominates to replace Powell until the legal matter has concluded.

“If there were any remaining doubt whether advisers within the Trump administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” Tillis said. “It is now the independence and credibility of the Department of Justice that are in question.”

Sen. Lisa Murkowski (R-AK) joined Tillis in a full-throated denunciation of the move and suggested an investigation into the Department of Justice. Murkowski said she spoke with Powell on Monday and called the investigation “nothing more than an attempt at coercion.”

GOP CHAIRMAN ISSUES DEFENSE OF POWELL IN BREAK WITH TRUMP

Senate Majority Leader John Thune (R-SD) said Monday that the situation needs to be “resolved quickly.”

“Because the Fed’s role and the Fed’s independence in shaping monetary policy in the country is something that we need to ensure proceeds and without political interference,” Thune said.

What the White House is saying

The White House has defended the investigation into Powell. White House National Economic Council director Kevin Hassett, who is a front-runner to replace Powell, stated that he valued the Fed’s independence, but emphasized transparency at the central bank.

“I guess the question is, if you think the building cost $20 billion, or $10 billion, do you think at some point that it’s appropriate for the federal government to investigate?” Hassett said during a press conference. “And it seems like the Justice Department has decided that they want to see what’s going on over there with this building that’s, you know, massively more expensive than any building in the history of Washington.”

Federal Housing Finance Agency Director Bill Pulte, an attack dog for Trump who has been one of Powell’s most vociferous critics, said the Justice Department is outside of his purview when asked about it on Monday.

Pulte was one of the top figures drawing Trump’s attention to concerns about the building renovations and has also accused Powell of lying to Congress about the renovations. Trump ended up touring the building at the center of the controversy last year.

The Washington Examiner reached out to Pulte on Monday morning, but did not receive a response.

What to know about the DOJ investigation into Fed Chairman Jerome Powell

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.