In a move that has sent ripples through global financial markets, US President Donald Trump has nominated Kevin Warsh to succeed Jerome Powell as the Chair of the Federal Reserve when Powell's term expires in May. Warsh served as a Fed Governor from 2006 to 2011.
According to Seth R Freeman, Senior Managing Director of GlassRatner Advisory and Capital Group, one of the first tasks for the new appointee will be to establish credibility with the global markets.
This is especially relevant against the backdrop of the turbulent relationship between Trump and Powell in the last few months.
“This nominee is the best choice. He's been in government for a long time. But the best news is we won't have to deal with the uncertainty and the disruption of Donald Trump harassing Fed Chairman Powell. And that should be good for everybody,” he said during a conversation with NDTV Profit on Saturday, Jan. 31.
“I think he will want to operate with a sense of independence to demonstrate his integrity. Like anybody starting a new job, and this is a complicated one, he needs to establish credibility with the market, with the global market, with business. This would be a bad time to basically appear to be a Patsy for the President,” Freeman added.
One of the primary relief points for the markets is the potential end to the public friction between the President and the Fed Chair.
“If this helps mitigate the president saying outrageous things about the Fed and the Fed chairman, that will create some stability.”
The nomination triggered immediate market reactions. Precious metals, which had enjoyed a dramatic rally in recent months, suffered sharp declines. Gold and silver prices crashed significantly, with the white metal experiencing one of its steepest single-day drops. Freeman attributed this to expectations of a stronger US dollar and a shift in the monetary environment.
“Just look at this huge decline in gold, and an even more massive decline in silver indicates that we're going to have a stronger dollar and a different environment going forward, especially silver,” he said.
“I wouldn't be surprised if metals do not rebound significantly in light of this nomination,” Freeman added.
With Warsh's hawkish leanings, traders who were heavily positioned in precious metals could face losses, particularly those not hedged or short on the positions.
“I think there's going to be some traders perhaps being in deep trouble on Monday, the ones that at least weren't neutral or shorting these precious metals,” the analyst said.
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On the US dollar, Freeman described the uptick as a "rebalancing" and some "enthusiasm" rather than a dramatic surge, following a recent decline. He cautioned that the coming months, including the Senate confirmation process, would be crucial in shaping longer-term trends.
Warsh is known as an inflation hawk, with a long-standing focus on controlling price pressures. This is a stance that aligns with concerns among American households about persistent inflation in key areas, Freeman said.
He pointed out that this inflation focus could serve as a political asset for the administration while addressing core economic worries.
“This man is known for being independent. I was reading that there's still some expectation that there could be two more rate cuts this year, in spite of his orientation towards inflation,” Freeman concluded.
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