Will Trump's pick to lead US central bank get him the change he wants?

Donald Trump has been calling for change at the US central bank.

Now, with Jerome Powell's term as Federal Reserve chairman poised to end in May, he could be about to get his wish.

On Friday, the US president announced Kevin Warsh - a conservative whom he had passed over for the post, to his regret, during his first term - as his choice to replace Powell.

"Warsh "is 'central casting' and he will never let you down," Trump declared on social media as he announced the decision.

The irony of the choice was lost on no one. Warsh has made his name as a supporter of higher interest rates - a reputation he has tried to shed in recent opinion articles and media appearances.

It's a position that would seem to put him at odds with Trump, a self-described "low interest rate guy", who has criticised Powell for not cutting interest rates quickly enough and who has made no secret that his choice to lead the Fed should be on board with his views.

It remains to be seen whether Warsh's selection will lead to the bank Trump wants.

Warsh brings a traditional background to the job: an Ivy League education, a prior stint at the Fed, as well as time on Wall Street and at the Hoover Institution - a conservative economic think tank.

Supporters say he is sensitive to concerns about the bank's independence and alert to the risks if its policies serve short-term political aims rather than the wider economy.

Lee Ohanian, an economics professor at UCLA and senior fellow at the right-leaning Hoover Institution, who has known Warsh for years, said taking directions from Trump "would diminish the Fed. It would diminish the office of the chairman, and it would create tremendous turmoil in the financial markets. Kevin knows that".

In Congress and on Wall Street, where Trump's attacks on Powell have caused alarm, Warsh's potential independent streak is seen as a plus.

His nomination has drawn praise from establishment figures including former Secretary of State Condoleezza Rice, and Mohamed el-Erian, a high-profile economist with a long career on Wall Street.

Critics have questioned whether it is the fact that Warsh's father-in-law, Ronald Lauder, is a Trump donor and friend that got him the job.

Others say his record as a policymaker is poor, noting that Warsh opposed economic stimulus during the 2008 financial crisis as he fretted the policies would lead to inflation – a minority view then and now.

Congressman Don Beyer, a Democrat from Virginia, accused Warsh of showing "willingness to wildly alter his views...based on who is in the White House".

But on balance, many in financial circles see him as a responsible pick.

"There appears to be at least some degree of comfort with a Warsh-led Fed vs. the other choices," Wells Fargo analysts said on Friday - noting that his relatively sparse public profile in recent years implies a degree of uncertainty.

"Investors should be thankful," Jeffrey Roach, chief economist for LPL Financial, told the BBC.

What Warsh could mean for interest rates?

The acceptance of Warsh is partially a gamble that a Fed with him in charge might not change much.

After all, despite Trump's complaints, the Fed cut interest rates three times last year and most analysts expect additional cuts this year – regardless of what Trump thinks.

That's good news for borrowers in the US, who may see lower rates on mortgages, car loans and other kinds of debt - and maybe for the president too, if this makes people feel better about the economy.

It also means Warsh does not necessarily have to surrender his credibility as an independent economist to deliver lower interest rates for Trump.

'Mission creep' at the Fed

Where differences might be felt more is in other parts of the Fed, which Warsh has accused of "mission creep" and taking on too big a role in the economy.

He wants to reduce its role in bank regulation and cut back study of issues like climate change - putting him in alignment with the White House.

He, like Treasury Secretary Scott Bessent, is a fierce critic of the interventions the Fed made in markets after the 2008 financial crisis and again during the Covid-19 pandemic, which has left the bank with huge holdings of Treasuries and mortgage-backed securities.

Warsh maintains these policies prop up the stock market and other assets - benefiting the wealthy and big financial interests rather than the mainstream economy - and has called for reducing those holdings and coordinating their management more closely with the Treasury Department.

Whether he would actually lead the Fed to shrink its balance sheet more quickly than the bank has been doing is unclear. One effect of doing so could be higher borrowing costs - exactly the opposite of what Trump wants to see.

On Friday, gold prices dropped and the dollar gained, suggesting traders see Warsh as likely to stick to his initial instincts as a "hawk" who favours higher interest rates.

Narayana Kocherlakota, a finance professor at the University of Rochester, who served on the Fed with Warsh, said he thinks he would go against the president if conditions called for it.

"He's very smart and he's very independent. And I think that's the kind of person that Americans should want at the head of their central bank," Kocherlakota said.

Others argue Warsh's thinking on the economy has evolved to be closely aligned with Trump, including downplaying concerns that rapid growth and rising wages could fuel inflation.

"Warsh is not the Fed's guy, he is Trump's guy, and has shadowed Trump on monetary policy almost every step of the way since 2009," wrote Thierry Wizman, global foreign exchange and rates strategist at Macquarie Group.

For now, Warsh may look like the candidate most likely to satisfy all parties.

But Trump's swift turn on Powell - his last pick for Fed chair - should serve as a cautionary reminder.

Reporting contributed by Danielle Kaye, Daniel Bush and Jonathan Josephs