Nomination of Federal Reserve Chair 

President Trump nominates Kevin Warsh as next Fed Chair

• President Trump announced earlier this morning that he is nominating Kevin Warsh to be the next Chair of the Federal Reserve. If confirmed by the Senate, Warsh will step into the role in May, following the end of Chair Powell's term. 
• Warsh brings plenty of experience to the position, as he previously served as a Fed governor from 2006 to 2011. During his time as at the Fed, Warsh developed a reputation as leaning more "hawkish". After leaving the Fed, Warsh became an outspoken critic its of "loose monetary stance" in the years that followed the Global Financial Crisis, warning that it would fuel rising prices. However, Warsh has shown a desire to lower interest rates more recently. 
• In the past, Warsh has also voiced concerns over the size of the Fed's balance sheet. However, given how entrenched the "ample reserve" operating framework is in the financial system, it's highly unlikely that the Fed moves to aggressively shrink its balance sheet under the incoming Chair. 
• While Warsh has long been an advocate for central bank independence, he also criticized central banks of "mission creep". 
• The Senate Banking Committee still needs to confirm Warsh's nomination, which could cause a roadblock. Senator Thom Tillis has said that he will oppose President Trump's nomination until the ongoing federal criminal probe of current Chair Jerome Powell is resolved.

Key Implications

• After several months of deliberations, and as many as eleven candidates considered for the role, we finally have an answer on who Trump has nominated be the next Fed chair. Warsh brings plenty of experience to the position, having served as Fed governor through the Global Financial Crisis, and played a pivotal role in the design and implementation of the emergency lending programs aimed at stabilizing credit markets. He also served as the central bank's representative to the G20 during that time. 
• There's been a lot for market participants to digest this week, including a potential government shutdown, a sharp drop in the dollar, and several "Big Tech" earnings releases. But so far, financial markets have taken this morning's announcement in stride. 
• U.S. equities are a bit lower, while the yield curve has steepened by just a few basis points. The biggest move has come from the sharp recoiling of gold – suggesting market participants don't see the Fed's independence as coming under threat. Fed futures have barely budged on the news, with two cuts still priced by year-end. In part, this could reflect the uncertainty surrounding not only Warsh's confirmation, but also whether Chair Powell will ultimately serve out the remaining two years of his term, which would have implications for the composition of the board. While Warsh has shown a desire to lower rates over the near-term, it's worth reminding our readers that monetary policy is set by consensus. Therefore, any meaningful shift in the policy stance will require the new Fed chair to bring a majority of committee members onside, which at the moment seems unlikely. 

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