Stock Market Takes Warsh Nomination in Stride

Stock and bond markets were unfazed by Kevin Warsh’s nomination as the next Fed chair with the S&P 500 nudging slightly lower in early trading Friday.

Investors seemed broadly unfazed with the nomination of Kevin Warsh to become the next chair of the Federal Reserve, with muted reaction in stock and bond markets after his announcement.

The S&P 500 nudged 0.3 percent lower as trading opened on Friday. Investors were also contending with hotter-than-expected inflation numbers released in the morning.

The government bond market showed little sign of concern over the appointment. Shorter-dated government bond yields, which will be more influenced by Mr. Warsh’s decisions at the Fed, inched lower, while longer-dated yields, which are more sensitive to inflation worries, moved slightly higher.

Mr. Warsh previously served on the Fed’s board of governors, the same group he will now lead, and garnered a reputation as an inflation hawk, wary of setting policy that encourages higher prices. More recently, he has aligned himself with Mr. Trump’s call to lower interest rates, citing weakness in the labor market as justification for doing so.

The president has repeatedly clashed with Jerome H. Powell, the current chair, whom Mr. Trump has criticized for not lowering interest rates quick enough. And investors had worried that Mr. Trump would pick a Fed chair that would bend to his economic will.

But while Mr. Warsh received a glowing endorsement from Mr. Trump, many market watchers see him as a credible choice to lead the central bank and push for monetary policy appropriate for the economy, not just the administration.

“Collectively, the market is saying that there will not be much of a change in the Fed funds path because of this nomination,” said Ajay Rajadhyaksha, global chairman of research at Barclays. “We think this makes total sense.”

Investors’ interest rate expectation, derived from prices in the interest rate futures markets, barely budged after the announcement. The consensus estimate for this year is for two cuts to rates, each a quarter of a percentage point.

“I think the initial reaction has been relatively cautiously favorable,” said James McCann, a senior economist at Edward Jones, a fund manager, who also called Mr. Warsh an “independent thinker.”

“I think the market looks at his background as someone who’s sat on the Fed board, particularly during the financial crisis, and played an important role there as something that stands in his favor,” he said.

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