With the nomination of Kevin Warsh as the new chair of the US Federal Reserve (Fed), the financial world is turning its attention to a seasoned monetary policymaker who understands crises both in theory and in practice. Market participants are now wondering whether his tenure will mark a new direction in monetary policy or continue the traditional principles of discipline, credibility, and central bank independence.

A monetary policymaker experienced in crises

Warsh, who served on the Federal Reserve Board of Governors from 2006 to 2011, played a key role during the global financial crisis. His clear stance, strategic thinking, and consistent advocacy for price stability earned him considerable respect at the time. Back in 2017, he was already seen as a potential Fed chair, but Donald Trump ultimately nominated Jerome Powell.

Since then, Warsh has continued to develop his monetary policy views without abandoning his core principles. From an uncompromising inflation fighter, he has become a pragmatic strategist, placing greater emphasis on economic realities. During his previous tenure, he repeatedly highlighted the need for discipline: he called for a prompt reduction of the Fed’s balance sheet following the first round of quantitative easing, warned against distortion arising from prolonged zero interest rate policies, and opposed excessive communication through so-called forward guidance. He was similarly critical of efforts to draw the central bank deeper into socioeconomic issues such as climate or inclusion.

A more nuanced stance since 2024

In recent years, his tone has become more moderate. Since 2024, amid easing inflation and persistently high interest rates, Warsh has advocated for cautious rate cuts, without abandoning his principles. For him, credible inflation-fighting, gradual balance sheet reduction, and generally restrained monetary policy remain paramount.

Initial market reactions

Financial market reactions have been cautious. Warsh is seen as less inclined to deploy aggressive monetary stimulus. As a result, gold, silver, and other risk-sensitive assets traded significantly lower, while the US dollar and yields on US Treasuries saw modest gains. This partially corrected previous price movements that had resulted from diminished confidence in US monetary policy and the dollar.

Nevertheless, it is important to put today’s market reaction, especially in precious metals, into perspective: despite significant corrections, year-to-date price gains remain remarkable. Gold, for example, is still up over 18% and on track for its strongest monthly increase since 1980.

Monetary policy implications

Warsh’s recent statements also highlight certain areas of tension. For forex markets, his stance on the US dollar is particularly relevant. He emphasizes that the reserve status of the US currency is based on the country’s economic and institutional strength, and that this is a privilege to be earned through credibility, not squandered lightly. This view stands in contrast to some of the more reflexive, politically motivated policy approaches seen during the Trump administration so far. An independent Fed under Warsh could therefore help restore the confidence underpinning the dollar system, without necessarily making fundamental changes to monetary policy.

The US Fed is not a one-man institution

However, it is crucial to remember that, despite the symbolic significance, the Fed should not be seen as a one-man institution. Decisions on rates and balance sheet policy are still made by the Federal Open Market Committee (FOMC), which consists of seven governors in Washington and five rotating regional Fed presidents. While the chair sets the agenda and the tone, they do not have veto power. All decisions are made by consensus and remain bound by the dual mandate enshrined in law: price stability and full employment.

Conclusion: Discipline yes, policy shift uncertain

The appointment of Kevin Warsh is likely to reduce the risk of a prolonged dollar weakness and restore the credibility of US monetary policy. At the same time, markets might underestimate his flexibility in responding to economic slowdowns. His closeness to Trump’s demands for lower interest rates should be interpreted less as political subordination and more as a tactical alignment under the primacy of stability. Against this backdrop, it seems too early to draw far-reaching conclusions from today’s market reactions. Political attacks on the independence of the Fed are unlikely to cease simply because Trump’s favored choice is now at its helm.