Instant Reaction: Trump Nominates Warsh for Fed Chair

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

1:01This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. Breaking news now official. A red headline crossing the Bloomberg terminal as President Trump has announced via his Truth Social account that he is nominating former Fed Governor Kevin Warsh to succeed Jay Powell as chairman of the Federal Reserve when Chairman Powell's term expires in May. And we are joined by Bloomberg International Economics and Policy Correspondent Michael McKee. Mike, good morning. This was an expected announcement. Our reporting was that the president had settled on Kevin Warsh, but of course This was a figure that the president had passed over the last time around when he nominated Chairman Powell.

1:51Yes, but Warsh has stayed in close contact with the president ever since. And, of course, his family, not him as much, but his family has been big donators to the Republican Party. So Warsh and the president have a relationship. The biggest issue has been whether Warsh would be too hawkish, given that the president wants extremely low interest rates. Warsh has made some comments recently to the effect that AI and the massive capital spend we've seen and the deregulation of the Trump administration would mean faster growth with lower inflation. So that may have made him acceptable as a final choice.

2:28And, of course, we have seen a market reaction in the lead up to this official announcement. Stocks falling, Treasury yields rising just a bit. What do you make of that market reaction, Mike? Well, I think the bond market and the dollar are telling you what the markets think at the moment. They're going on the fact that Warsh has been a hawk. When he was on the Fed, he was very reluctant to cut interest rates, even during the great financial crisis. And so that's driving a steeper yield curve in the dollar fall. Equities, I think you have to kind of also balance that out with the idea that we've got a potential war with Iran.

3:06We've got the blockade of Cuba. We've got tariffs on Canada. All kinds of things coming out of the White House in the last 24 hours that you have to try to figure into your equity allocations. I want to bring in Tom Keene and Paul Sweeney, co-anchors of Bloomberg Surveillance, coming up in just about eight minutes. Of course, we're going to have much more coverage on this official announcement of Kevin Warsh, the president's nominee to succeed Jay Powell. Tom and Paul, your reaction this morning? My reaction is going to Mike McKee. This is the reality. The reality is you never know. Mike, you're the only one that's old enough to remember this.

3:41June 2nd, 1987, Paul Volcker, excuse me, nominates Greenspan to succeed Paul Volcker. And we're like, does he play clarinet? Do we know when these people are picked who they really are? Well, you don't because they react to the circumstances in which they find themselves. Now, the Fed has had a remarkable run with Greenspan being the one who basically thought we would have this tech revolution that would hold down inflation. And instead of raising rates, he let it ride. Then we had Ben Bernanke, who was the serious scholar of the Depression and the mistakes that were made at the Fed, come along just when we have the great financial crisis.

4:27Janet Yellen, calm as they got out of the financial crisis. And Powell has managed his way through a political minefield. So we'll see what Kevin Warsh ends up doing. What to you is the distinction between two, quote, unquote, investment bankers, smooth guys like Jerome Powell and Kevin Warsh? How are they different? Well, they're very different in temperament, although they're both lawyers. And that's going to be the interesting thing is Warsh has taken economic classes, spent a lot of time studying the economy. But he is a lawyer by training, as is Jay Powell. And so it's a different kind of leadership for the Fed for the last eight years.

5:07And now it looks like 12 years. But Warsh is very confident in himself and has very strong views about what the Fed should do. Powell is much more soft-spoken and very good at lobbying up on Capitol Hill. It'll be interesting to see if Warsh follows that model, which, of course, Powell suggested the next chair do at the news conference this week. Mike, do we know what's the timeline here? When does Mr. Warsh assume his position? And then what does Jay Powell do? Those are the big questions. Well, Powell's term is up on May 23rd. There's still plenty of time to get him confirmed. And while the Justice Department subpoena of Fed records and Jay Powell's records is a problem for Tom Tillis in the Senate and Lisa Murkowski, you have to think that the president could just pick up the phone and call the U.S.

5:56attorney in Washington, D.C. and say, make that go away. Okay. There are no charges there yet, so it's not something that would be too hard to get out of. And then the Senate has shown, as they did with Myron, Stephen Myron, that they can move very quickly to get somebody confirmed. All right. Bloomberg's Mike McKee along with Tom Keene and Paul Sweeney with Bloomberg Surveillance. We want to bring in Bloomberg's Dan Curtis now to take a look at some of the market reaction to this. Dan, of course, we had been seeing stocks fall, bonds rise, the dollar strengthening a bit ahead of Kevin Warsh's announcement.

6:30What stands out to you this morning? Yeah, good morning. What's standing out to me is the dollar's found a little bit of a bid just off the back of this news. It's gotten a little bit. It's been all over the place. But, you know, kind of with Warsh coming in, he's seen as a little bit more of a hawk than who could have been named. Overnight, we did see some bids coming into the dollar. That was at a session high a little bit earlier this morning. It's come down since. That has started to derail the gold rally. A lot of the gold movement was around this debasement trade. And so a higher dollar could potentially hurt some of those hopes from gold.

7:03So what had been an absolutely stellar spree within the gold buying, that has come back. This dollar weakness has put a little bit more, a little bit of legs into gold, which is off the lows of the morning. But in general, that's kind of the main area that I'm watching. In terms of equities, we do see S &P futures off the session lows. They've been climbing for a few hours. Nothing too much off this news. We have the two-year down coming in a little bit. Again, we are expecting kind of a hawkish move from Warsh. That's been generally more hawkish than what would have been expected market sentiment.

7:38So this is kind of countering that a little bit. You would expect the two-year yield to be up on a more hawkish move. It's been pretty range-bound for a few months. But again, it's down one bit. We're seeing a little lift in equities. Markets generally taking this in stride. I think this was pretty well seen. So markets had time to position overnight. And right now it's kind of just playing out. Yeah, so it's kind of a sell the rumor, pair back the news event maybe as we get this announcement. Thank you for this. Bloomberg's Dan Curtis keeping an eye on the market reaction. Tom, Paul, there are still a lot of questions that we need to get answered here now that the one big question has been answered.

8:16Kevin Warsh is President Donald Trump's pick to succeed Jay Powell as the chairman of the Federal Reserve. You know, the president had talked about the two Kevins. They liked them a lot. Now, I guess we wonder, you know, how dovish is Kevin Warsh going to be once he comes in? Chris Giles in the FT, and I recall this article, and it was in April, Paul, of last year. And Chris wrote it up, and his first item, his first bullet point, if you will, Nathan, was the idea of this guy's congenitally against inflation. He has a real history basis, going back to his time on Wall Street, of saying, you know, let's do it.

8:53Paul, is old school the right phrase? I think so, yeah. I mean, it's old school. Let's fight inflation. And I believe, Nathan, that's opposite of the President of the United States. I'm not sure how that fits together, but maybe we'll find out this morning with an announcement. Yeah, we do. will, once we do get that formal announcement outside of Truth Social, if the president does make some remarks, of course, you are going to hear them on Bloomberg Radio. And another unanswered question, of course, is how much of a fight is Kevin Warsh going to face in Senate confirmation when we've heard from Tom Tillis that unless the Jay Powell criminal investigation gets resolved, he's not going to vote for anybody.

9:34Yeah, I mean, I think, Tom, that might go to the issue of, again, what role will the president have here as it relates to this investigation? Michael McKee suggesting that maybe a phone call could be made and that can go away and we can get a clearer or cleaner confirmation here. We'll have to see. Tom, Paul, thank you for all this. And ahead of the market open, ahead of the official announcement of Kevin Warsh to be the next chairman of the Federal Reserve, futures are falling. NASDAQ futures are down one half of 1%.