Trump said he would announce the candidate for the chairman of the Federal Reserve on Friday, and Warsh's probability of being nominated soared to 86%!

# Source: Wall Street News

# By Zhao Ying

Trump revealed that the pick is "very respected and well-known in the financial world", adding that "it will be a fantastic choice". He supplemented that the nominee is "not going to be a big surprise" and is from the list of candidates. According to the latest data from prediction market Polymarket, the probability that former Federal Reserve Governor Kevin Warsh will be nominated by Trump as the new Fed Chair has soared to 86%. Deutsche Bank analysis shows that if Warsh is elected Fed Chair, his policy stance is likely to feature a unique combination of "interest rate cuts alongside balance sheet reduction".

As reported by The Wall Street Journal, US President Donald Trump stated on Thursday evening that he will announce his nominee for Federal Reserve Chair on Friday morning (Beijing time tonight). This appointment will determine the policy direction of the world's most important central bank for the next four years, as the term of the current Chair Jerome Powell is set to end in May this year.

Trump told reporters that the nominee is "very respected and well-known in the financial world" and said, "It will be a fantastic choice". He added that the pick is "not going to be a big surprise" and is selected from the list of candidates.

The latest figures from Polymarket, a prediction market, show that the probability of former Federal Reserve Governor Kevin Warsh being nominated by Trump as the new Fed Chair has surged to 86%.

Treasury Secretary Bessent has been leading the selection process and has submitted four final candidates to Trump: former Fed Governor Kevin Warsh, current Fed Governor Christopher Waller, BlackRock executive Rick Rieder, and White House National Economic Council Director Kevin Hassett.

This appointment will bring an end to the years of tense relations between Trump and Powell. Trump nominated Powell as Fed Chair during his first term, but later repeatedly criticized the Fed for not cutting interest rates more quickly. The Federal Reserve kept its benchmark interest rate unchanged this week, hitting the pause button after three consecutive rate cuts last year.

## If Warsh Is Nominated, Rate Cuts and Balance Sheet Reduction May Proceed in Tandem

Kevin Warsh’s experience spanning academia, regulatory bodies and the investment sector has given him a profound understanding of both financial markets and monetary policy. A lawyer by training, Warsh has extensive experience in both the public and private sectors.

In the public sector, he served as a Federal Reserve Governor from 2006 to 2011, a period when the Fed was responding to the global financial crisis, and he played a key liaison role between the central bank and the markets. Warsh is currently a partner at Duquesne Family Office, founded by Stan Druckenmiller, and also a distinguished visiting fellow at the Hoover Institution and a lecturer at the Stanford Graduate School of Business.

Deutsche Bank analysis indicates that if Warsh is elected Fed Chair, his policy stance is likely to present a unique combination of "interest rate cuts alongside balance sheet reduction". The bank argues that the implementation of this combination is premised on regulatory reforms to lower banks' reserve requirements, whose short-term feasibility is in doubt. The market needs to closely monitor whether the new Chair can maintain independence under pressure from Trump to cut interest rates sharply, as well as the process of building his policy credibility.

Recently, in an in-depth interview, Warsh bluntly stated that inflation is the Fed's responsibility and cannot be attributed to external factors. His reform proposal is not a complete overhaul; instead, he advocates that the Fed needs a "renaissance" rather than a "revolution". Addressing the predicament of high interest rates, Warsh believes that room for lower rates can be gained through balance sheet reduction. "If we quiet the printing presses a bit, interest rates can actually be lower."

In addition, a previous Wall Street article noted that after interviewing Rieder earlier this month, Trump described him as "very impressive". Like Trump, Rieder has clearly stated that interest rates should be lower. His focus on the practical impact of monetary policy, particularly in areas such as the housing market, is highly aligned with the Trump administration's emphasis on affordability. This makes him a candidate in Trump's eyes who both supports rate cuts and is not widely seen as a threat to the Fed's independence.

## Long-Standing Rift Between Trump and the Federal Reserve

Trump has been a persistent critic of the Powell-led Federal Reserve for years. Although Powell was his nominee during his first term, Trump quickly grew dissatisfied with the appointment and frequently lashed out at the Fed for not cutting interest rates more rapidly. President Joe Biden later renominated Powell, whose second four-year term is set to expire in May this year.

Trump said on Thursday that "interest rates are still coming down, no matter what the Fed does", showing his continued focus on the direction of monetary policy. The choice of the new Fed Chair will directly impact the future path of interest rate policy and the Fed's strategy for balancing inflation control and economic growth support.

If Warsh takes the helm of the Federal Reserve, the market may see a significant adjustment to the Fed's policy framework, which will have far-reaching implications for global financial markets and economic prospects.

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