The Fed’s next chair: Who is Kevin Warsh?

What does Trump’s nomination of Kevin Warsh to be the next Fed chair mean for markets and the interest rate trajectory?

Market recap

• Equity markets had a choppy week alongside even with as-expected interest rate holds from both the Federal Reserve and Bank of Canada.
• The S&P 500 added 0.3%, with strong gains in communication services and energy holding the index in positive territory.
• Earnings results were mixed across a number of big tech names such as Microsoft (negative), IBM (positive) and Meta (positive).
• Fred Demers, Head Strategist, Multi-Asset Solutions, BMO Global Asset Management, is sitting in this week. Sadiq will return next week.

The Fed

Last Friday, U.S. President Donald Trump nominated Kevin Warsh to succeed Jerome Powell as the next chair of the U.S. Federal Reserve (Fed). Warsh is a veteran of the central bank, having served as a Fed governor from 2006 to 2011. He will need to be confirmed by the U.S. Senate before officially assuming the role, and while this could be a lengthy process, we wouldn’t expect any significant roadblocks. Assuming he is confirmed, markets appear to believe that he will be an advocate for lower interest rates, which have long been a priority for Trump. In the past, Warsh seemed to revel in being perceived as a hard-money central banker—an easier image to uphold in a world of excess monetary support. In recent years, he has been critical of quantitative easing (QE), fearing that it would stoke inflation. Ultimately, it did not—though it did distort financial markets. In the summer of 2008, Warsh was part of the Federal Open Market Committee (FOMC) faction that worried about inflation, which proved to be unfounded amid the Global Financial Crisis. And as his name began to be mentioned as a potential Fed Chair candidate, he talked down data-dependent decision making, which has been the Fed’s typical approach under Powell. Warsh speaks frequently about the potential of artificial intelligence (A.I.) productivity boosts as a means of keeping inflation in check. He’s also been critical of current Fed models and dogmas, including the belief that economic growth automatically fuels faster wage growth—a criticism we tend to share. Under a Warsh-run Fed, we’d expect dissents to be more frequent. But do not underestimate the sway of the Fed chair—and as an ex-Fed governor, Warsh knows how to play the game. Politically, Warsh’s experience allows for the optics of Fed independence to be maintained. Equity markets stumbled slightly in the immediate aftermath of the announcement, seemingly unsure what to think. But in the longer run, a low-rates advocate should be bullish for equities and bearish for bonds.

Bottom line: Under Warsh, it is likely that U.S. monetary policy will be looser than it has been under Powell, which should be good news for equity markets and bad news for bonds.

Consumers

A new report last week showed that U.S. consumer confidence has fallen to its lowest level since 2014.¹ Is this a major warning sign for consumer spending and the overall health of the economy? Not necessarily, in our view. In general, consumer surveys like this one—which was conducted by the Conference Board, a nonprofit think tank—have been poor indicators of the economic reality. One reason is the political divide: recent events in Minnesota have upset a lot of people. Also, the cost of living likely plays a role. While inflation has come down, cumulative inflation since the pandemic has affected housing affordability, food prices, and heath care costs. It is a bit unusual to see such low confidence numbers at a time when the U.S. is not experiencing old-fashioned economic pain in the form of major job losses. Record stock prices would also typically lead to a more upbeat consumer. That said, despite consumers’ flagging confidence, we aren’t particularly worried about their financial health. The labour market did experience a bit of a slowdown last year. But there are also significant tax refunds—which resulted from income tax cuts in 2025—that are about to hit U.S. consumers’ bank accounts. Trump hopes that this influx will bode well for him politically as the midterm elections approach.

Bottom line: Despite plummeting U.S. consumer confidence likely driven by political and cost-of-living issues, we do not have significant concerns about consumers’ overall health.

Gold

Gold continued its meteoric climb early last week, with prices briefly topping USD $5,500 per ounce² prior to Trump’s nomination of Kevin Warsh for Fed chair, which caused a selloff in precious metals. We see several reasons for this latest surge. First and foremost, gold’s best friend has been Trump, who has caused waves with his geopolitical statements and trade-related decisions. The conflict over Greenland, as well as the U.S. military action in Venezuela and tension with Iran, appears to represent a tipping point, as governments and investors alike began to wonder how far Trump would be willing to go. Some investors may also be skeptical of the administration’s economic agenda despite strong corporate earnings. Portfolio managers and asset allocators have gradually realized that fixed income may not necessarily be the best hedge to equities in these conditions, and that has increased the motivation to diversify. In that respect, gold has a long track record—thousands of years, one might argue—as a reliable store of value. Gold has also served as a particularly good hedge over the past five to ten years, which is why we have consistently maintained a gold position in our portfolios for some time. Overall, markets’ concerns remain heightened, and that has been a tailwind for gold prices. Other precious metals had also done well prior to Friday’s selloff: in particular, silver had started to catch up on a reacceleration of U.S. growth and China’s emphasis on sustaining its economic momentum. We’ve also seen good news on global trade flows, which could indicate a pickup in manufacturing. In particular, electronics manufacturing requires a variety of metals—including gold, silver, and copper—which could further increase demand.

Bottom line: While Kevin Warsh’s nomination caused a substantial dip in precious metal prices, the overall economic backdrop—including significant geopolitical uncertainty—remains supportive of further price increases.

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Originally Posted February 2, 2026 –

Source

¹Lucia Mutikani, “US consumer confidence dives to a more than 11-1/2-year low,” Reuters, January 27, 2026. 

²Valerio Baselli, “Gold Price Surges Above USD 5,500: Here’s Why,” Morningstar Canada, January 29, 2026. 

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