Financial markets appeared to unanimously conclude that the reported nominee, long known for his hawkish stance, would be more aggressive than other candidates and the incumbent Chair Powell. This expectation was triggered by media reports suggesting U.S. President Donald Trump was preparing to nominate former Federal Reserve Governor Kevin Warsh as the next Fed Chair on Friday morning local time. Furthermore, it is widely believed that Warsh might pursue a unique policy mix of "balance sheet reduction + interest rate cuts," which could be detrimental to liquidity expansion in stock and bond markets, sending the U.S. dollar higher in tandem with U.S. Treasury yields. Almost simultaneously, losses in futures for the three major U.S. stock indices widened, while oil, which had been strong throughout the week, quickly turned negative on expectations of reduced liquidity. Prices for precious metals and industrial metals also experienced significant declines on Friday.
Prediction market Polymarket's latest data showed the probability of former Fed Governor Kevin Warsh being nominated by Trump as the new Fed Chair surged to 95%. Earlier that day, President Trump indicated he planned to announce the formal nomination for the next Fed Chair on the morning of the 30th local time (tonight Beijing time). Trump told reporters the individual is "highly respected, well-known to everyone in finance," and called it "a very good choice." He added that the choice "won't be too surprising" and comes from the list of candidates. This appointment would end the years-long tension between Trump and Powell, whom Trump nominated during his first term but subsequently criticized repeatedly for not cutting rates faster.
Following the news of Trump's intended nomination of Warsh, the U.S. dollar rose sharply against almost all major developed market sovereign currencies, while the yield on the 10-year U.S. Treasury note climbed rapidly. Given Warsh's long-standing reputation for a hawkish bias, this expectation quickly buoyed the dollar and Treasury yields, simultaneously putting pressure on commodity prices—including metals and oil—as well as the stock market. Some media reported, citing a White House insider, that Trump had settled on Warsh, but also noted that Trump's verbal choice is not final until officially announced.
The markets are pricing in with real money—Warsh would be a market-unfriendly, hawkish Fed Chair. "Judging from the movements in metals, stocks, and bonds, the market's perception is that if Kevin Warsh becomes Fed Chair, he would be relatively more traditional and less market-friendly than BlackRock's Rieder—after all, Rieder, as BlackRock's Global Chief Investment Officer of Fixed Income, understands better how to communicate with markets. In this scenario, we might see fewer rate cuts in the future," said Andrew Ticehurst, Senior Strategist at Nomura in Sydney. These latest market fluctuations indicate that the months of uncertainty surrounding the next Fed chief are now nearing a resolution.
Media reports citing a White House insider noted that Warsh, a former Fed governor and one of four final candidates for the nomination, had visited the White House on Thursday. As shown in the chart above, prediction markets saw a surge in the probability of Warsh becoming the next Fed Chair—while support for BlackRock's Rick Rieder, who had recently been the frontrunner, cooled. Betting markets also increasingly favored Warsh. Polymarket data showed his probability of becoming the next Fed Chair rose to over 95% during Asian trading hours on Friday, while support for BlackRock Inc. executive Rick Rieder weakened significantly.
"Regardless of how he might debate now to align with Trump's rate-cut script, Warsh has a long hawkish history that the market hasn't forgotten, hence the rise in the dollar and yields," said Sean Callow, Senior Analyst at ITC Markets in Sydney. "It's unusual to see the U.S. Treasury yield curve steepen during Asian hours, suggesting this move is a defensive posture investors are adopting to prepare for a more hawkish, rules-oriented regime under Kevin Warsh's Fed," remarked Mark Cranfield, Senior Strategist at Bloomberg Strategists. Warsh served on the Federal Reserve Board from 2006 to 2011 and has advised the Trump administration on economic policy. If nominated and confirmed, he would succeed Jerome Powell, whose term as Fed Chair ends in May.
The signal of a more orthodox Fed Chair candidate emerges as markets are under pressure, grappling with concerns over an increasingly unpredictable U.S. policy path, unsustainable large fiscal deficits, and political ideology interfering with central bank policy independence. Comments from Trump earlier in the week had hinted at his preference for a weaker dollar, after which U.S. Treasury Secretary Scott Bessent stated the administration supports a strong dollar policy. The dollar has fallen significantly this year under the persistent influence of the so-called "debasement trade," a popular bet wagering on a long-term decline in its purchasing power. Bloomberg's dollar index slid this week to its lowest level in nearly four years.
Warsh's potential nomination is seen as possibly hedging against some of these factors. "Wash has been known for his hawkish leanings, emphasizing fiscal discipline and taking a more cautious approach to rate cuts," said Moh Siong Sim, Senior FX Strategist at OCBC Bank in Singapore. "Nominating Warsh could stabilize market concerns about the Fed's monetary policy independence, thereby supporting a stronger dollar and reducing the financial market risk premium built on expectations of a 'Fed put' or dovish stance." Gold fell following reports that the Trump administration was preparing to nominate Kevin Warsh as Fed Chair and the subsequent dollar strength; gold had just recorded its first decline in nearly two weeks prior.
As shown in the chart above, gold's rally experienced a "sharp tremor"—prices retreated significantly towards the end of a dramatic month. Gold fell as much as 4.8% on Friday, after rising 1.4% earlier in the day, extending the volatile swings that interrupted its record-breaking ascent in the previous session. The U.S. dollar index, which measures the greenback against a basket of sovereign currencies, rose nearly 1%, making the precious metal more expensive for most buyers. Warsh, long known as an "inflation hawk," has recently aligned more with the returned president's stance, publicly advocating for lower interest rates in recent months. Trump stated he would announce the nominee on Friday morning U.S. time.
However, an analyst team from Deutsche Bank suggested that if Warsh becomes Fed Chair, his policy approach might feature a unique combination of "rate cuts alongside balance sheet reduction." Nevertheless, the Deutsche Bank analysts believe implementing "rate cuts and QT simultaneously" would require regulatory reforms to lower banks' reserve requirements, making its short-term feasibility questionable. Markets will need to closely watch whether the new Chair can maintain independence under Trump's pressure for significant rate cuts and how he establishes his policy credibility. Recently, in a detailed interview, Warsh stated bluntly that inflation is the Fed's responsibility and cannot be blamed on external factors.
His proposed reform is not a complete overhaul but rather a "revival" instead of a "revolution" for the Fed. Addressing the dilemma of high inflation and high deficits while long-term U.S. bond yields remain elevated, Warsh believes the Fed could entirely use balance sheet reduction to create room for lower rates. "If we let the printing press quiet down a bit, interest rates could actually be lower," he argued. Christopher Wong, Strategist at OCBC Bank in Singapore, commented that gold's volatility "confirms the warning that what goes up fast can come down fast." He emphasized that while the Warsh nomination reports were the trigger, the market was due for a significant correction anyway. "It's like the excuse the market was waiting for to unwind those parabolic, anomalous moves."
Despite the pullback, gold is still up more than 20% year-to-date, supported by Trump's disruption of international financial, economic, and trade秩序, along with persistent attacks on Fed independence. Geopolitical tensions in Latin America and the Middle East remain elevated after Trump threatened military action against Iran and stated he would impose tariffs on any country providing oil to Cuba. Particularly, concerns surrounding the Strait of Hormuz have Brent crude oil poised for its largest monthly gain since July 2023. However, oil prices fell on Friday, tracking declines in metals like copper, gold, and silver, albeit by less than 1%. Meanwhile, the U.S. dollar index, which had been declining for several days, rebounded significantly, exerting substantial downward pressure on commodity prices.
President Trump called for Iran to engage in nuclear talks, while Tehran warned of retaliatory measures, undoubtedly raising concerns about a renewed escalation in U.S.-Iran tensions. Market focus remains on the potential impact of these tensions on shipping through the Strait of Hormuz. The Strait is a narrow channel between Iran and the Arabian Peninsula, crucial for global energy flows, with a significant volume of tankers carrying crude oil and liquefied natural gas passing through daily. Recent media reports indicated that Iran issued warnings to maritime vessels on Thursday, stating it plans military exercises on Sunday and Monday, including live-fire drills near the Strait of Hormuz; the report cited two Pakistani security officials.