Trump Nominates Kevin Warsh to Lead Federal Reserve

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Financial markets reacted sharply on Friday to President Donald Trump's nomination of Kevin Warsh to lead the Federal Reserve. U.S. stocks fell, with the S&P 500 down 0.4%, as investors tried to assess what Warsh's nomination could mean for interest rates and the Fed's independence. The value of the U.S. dollar rallied, while the prices of gold and silver plunged, with gold dropping 11.4% and silver plunging 31.4%.

Why it matters

The person leading the Federal Reserve has a significant influence on the economy and financial markets worldwide by helping to set U.S. interest rate policy. There are concerns that Warsh, who has been critical of the Fed's current chair Jerome Powell, may push for lower interest rates, which could stoke inflation but also boost the economy in the short term. The nomination has raised questions about the Fed's independence from political influence.

The details

Warsh used to be a governor on the Fed's board, so investors are familiar with him. Some on Wall Street took his nomination as an encouraging signal that the Fed will keep rates high, if necessary, to control inflation. However, Warsh has also voiced support for lower rates and has 'shadowed Trump on monetary policy almost every step of the way since 2009,' according to a strategist. The dramatic drop in gold and silver prices was likely inevitable given how far and fast the metals had surged over the past year.

• On Monday, gold topped $5,000 per ounce for the first time.
• On Thursday, gold reached around $5,600 per ounce.

What they’re saying

What’s next

The Senate must still approve Warsh's nomination to lead the Federal Reserve.