Donald Trump nominates Federal Reserve critic Kevin Warsh to run US central bank | BBC News

Key Concepts

• Federal Reserve (The Fed): The central bank of the United States, responsible for monetary policy.
• Jerome Powell: The current chair of the Federal Reserve.
• Kevin Walsh: Nominee for the next chair of the Federal Reserve.
• Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
• Interest Rates: The cost of borrowing money.
• Inflation: A general increase in prices and fall in the purchasing value of money.
• Hawk (in economic terms): Someone who prioritizes controlling inflation, even if it means higher interest rates.
• Ultra-Loose Monetary Policy: A policy of very low interest rates and increased money supply, often used to stimulate a struggling economy.

Nomination of Kevin Walsh to Chair the Federal Reserve

President Trump has nominated Kevin Walsh to be the next chair of the US Federal Reserve, succeeding Jerome Powell. This nomination requires Congressional approval, which is facing potential opposition contingent on the outcome of a criminal investigation into the Fed and Jerome Powell’s activities.

Kevin Walsh’s Background and Qualifications

Kevin Walsh, aged 55, is an economist with a strong background in finance and governance. His credentials include:

• Previous Fed Governor: Served on the Federal Reserve’s board of governors from 2006 to 2011.
• Hoover Institution Fellow: Affiliated with the right-leaning Hoover Institution, indicating a conservative economic perspective.
• UPS Board Member: Currently serves on the board of UPS, a major global logistics firm.
• Wall Street Experience: Possesses extensive experience within the Wall Street financial sector.
• Considered in 2017: Was previously interviewed for the Fed chair position during Trump’s first term in 2017.

Policy Alignment and Potential Impact

Walsh is perceived as aligning more closely with President Trump’s economic views, particularly regarding interest rates. However, his policy stance is nuanced:

• Critic of Ultra-Loose Monetary Policy: He has publicly criticized the Fed’s ultra-loose monetary policy implemented since the 2008 financial crisis.
• Inflation Hawk: Despite aligning with Trump on lower rates, Walsh has a reputation as a “hawk” – prioritizing control of inflation over economic growth, potentially leading to a preference for higher interest rates. This contrasts with Trump’s consistent pressure on Jerome Powell to lower rates to boost the economy.
• Market Reaction: Initial market reaction to the nomination was muted, with gold prices dropping (as gold is considered a safe haven asset during economic uncertainty) and potential rebalancing of portfolios towards equities.

Relationship with Jerome Powell and the Criminal Investigation

The relationship between President Trump and current Fed Chair Jerome Powell has been described as “stormy.” Trump has publicly criticized Powell, even using derogatory language.

• Trump’s Comments: Trump stated about Walsh, “I have no doubt he will go down as one of capital’s great Fed chairmen, maybe the best. On top of everything else, he says he is central casting. He will never let you down.” The meaning of “central casting” remains unclear.
• Criminal Investigation: Powell is currently under criminal investigation, allegedly orchestrated by Trump, to exert pressure on the Fed. The outcome of this investigation may influence Congressional approval of Walsh’s nomination.
• Powell’s Defense of Independence: Powell has repeatedly emphasized the importance of the Fed’s independence and credibility, stating that once lost, it is difficult to restore.

Recent Fed Actions and Future Outlook

The Federal Reserve recently maintained its key lending rate between 3.5% and 3.7% as expected. However, the accompanying commentary from Jerome Powell was considered crucial:

• Rate Stability: The Fed held the key lending rate steady at 3.5%-3.7% as of the broadcast date.
• Emphasis on Independence: Powell reiterated the importance of the Fed’s independence and credibility.
• Trump’s Preference for Lower Rates: Trump has consistently advocated for lower interest rates, as stated in a December comment: “He thinks you have to lower rates.”

Logical Connections and Synthesis

The nomination of Kevin Walsh represents a potential shift in the Federal Reserve’s leadership and policy direction. While Walsh aligns with Trump’s desire for lower rates, his hawkish stance on inflation suggests he may not be a complete “stooge” for the President. The ongoing criminal investigation into Jerome Powell adds a layer of political complexity to the confirmation process. The market’s initial reaction indicates a cautious optimism, with potential for portfolio rebalancing based on perceived stability. Ultimately, the appointment of Walsh will significantly impact the world’s largest economy, setting the parameters for future monetary policy and economic growth.