By Ann Saphir and Steve Holland
WASHINGTON, Jan 30 (Reuters) – President Donald Trump on Friday chose former Federal Reserve Governor Kevin Warsh to head the U.S. central bank when Jerome Powell’s leadership term ends in May, giving a frequent Fed critic a chance to put his idea of monetary policy “regime change” into practice just as the White House pushes for more control over the setting of interest rates.
Warsh, should he survive a possibly contentious confirmation process in the Senate, is set to take the helm of the world’s most important central bank, an institution that determines the cost of credit for the U.S. and beyond and which has been in Trump’s crosshairs since his return to the White House last year. In his earlier stint at the Fed, Warsh had a reputation as an inflation hawk, but he now advocates for rates to be lowered.
“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. On top of everything else, he is ‘central casting, and he will never let you down,” Trump said in a social media post announcing his latest move to put his stamp on a Fed he persistently criticizes for not caving to his demands for deep reductions in borrowing costs.
Trump repeated his “central casting” quip in an Oval Office event later on Friday, and a source close to Warsh said the 55-year-old’s appearance was a factor in Trump’s decision to pick him from a field of four finalists. Trump thinks Warsh looks like a central banker, the source said, and has told Warsh on more than one occasion, “You’re a good-looking guy.”
The decision also followed a lobbying campaign by Warsh allies, including his father-in-law and Trump booster Ron Lauder and billionaire investor Stanley Druckenmiller, the source said. “A lot of people weighed in with the president on his behalf.”
Trump said it would be inappropriate to ask Warsh whether he would cut interest rates, saying he wanted to keep his nominee “nice and pure.” But the president said he was confident Warsh was inclined to lower them.
U.S. stocks closed lower on the day after the announcement and in the wake of an inflation report that suggested price pressures could undercut any support for rate cuts among many of the Fed policymakers Warsh will be tasked with leading. The dollar strengthened and U.S. Treasury yields were mixed.
NEXT STOP IS SENATE BANKING COMMITTEE
The next step in the process is confirmation by a closely divided Senate. The Fed has long been seen as a stabilizing force in global financial markets due in no small part to its perceived independence from politics, and Trump’s escalating efforts to test that independence will be a key issue through the approval process.
One key Republican on the Senate Banking Committee set to review the nomination repeated an earlier vow not to support any nominee to the Fed as long as Trump’s Department of Justice continues with a criminal probe of Powell that became public earlier this month.
“My position has not changed: I will oppose the confirmation of any Federal Reserve nominee, including for the position of Chairman, until the DOJ’s inquiry into Chairman Powell is fully and transparently resolved,” Senator Thom Tillis of North Carolina said in a post on X.
Trump told reporters on Friday he was open to waiting for Warsh’s confirmation until Tillis, who is not seeking reelection this year, left the Senate. “If he doesn’t approve, we just have to wait until somebody comes in and we’ll approve it, right?” Trump said, calling the North Carolina lawmaker an “obstructionist.”
Other Republican senators on the panel, however, said Warsh would be good for Fed independence.
“No one is better suited to steer the Fed and refocus our central bank on its core statutory mandate,” Senator Bill Hagerty said in a social media post, and Senate Banking Committee Chair Tim Scott said he looked forward to a “thoughtful, timely confirmation process.”
Powell’s term as Fed leader ends in May, but Trump’s pressure campaign has also opened the door to the possibility that Powell, who called the criminal probe a pretext to pressure the central bank into setting monetary policy as the president wishes, may opt to stay on as a Fed governor in a bid to safeguard it from political capture.
Trump has also tried to force out Fed Governor Lisa Cook in a battle now before the Supreme Court that, if successful, would mark the first time a president has ever fired a U.S. central bank policymaker.
WARSH FAVORS BROAD OVERHAUL OF CENTRAL BANK
While Warsh is no White House insider, he has been a confidant of the president and a guest at the president’s Florida estate, and looks poised to push many of Trump’s priorities as a “shadow” Fed chief until Powell’s tenure in the top job ends in mid-May.
A lawyer and distinguished visiting fellow in economics at Stanford University’s Hoover Institution, Warsh has said he believes the president is right to press the Fed for steep rate cuts, and has criticized the central bank for underestimating the inflation-busting potential of productivity growth supercharged by artificial intelligence.
He has also called for a broad overhaul – “regime change” in his words – of the central bank that would slim its balance sheet and ease bank regulations.
As a Fed governor from 2006 to 2011, Warsh’s familiarity with Wall Street executives and investors made him a chief liaison to the financial community for then-Fed Chair Ben Bernanke during the 2007-2009 financial crisis.
It is not clear how Warsh’s nomination may affect the trajectory of rates in the short term. The Fed’s three rate cuts in 2025 brought its benchmark interest rate to the 3.50%-3.75% range. Earlier this week, citing stronger growth and a stabilizing labor market, it left rates on hold and signaled a pause ahead; markets for now don’t expect another rate cut until June, when Powell’s successor is expected to be in place.
(Additional reporting by Susan Heavey, Bo Erickson, Michael S. Derby and Andrea Shalal; Editing by Andrea Ricci, Dan Burns and Paul Simao)
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