{"id":450941,"date":"2026-02-01T04:51:08","date_gmt":"2026-02-01T04:51:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/450941\/"},"modified":"2026-02-01T04:51:08","modified_gmt":"2026-02-01T04:51:08","slug":"why-trumps-new-pick-for-fed-chair-hit-gold-and-silver-markets-for-good-reasons","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/450941\/","title":{"rendered":"Why Trump\u2019s new pick for Fed chair hit gold and silver markets \u2013 for good reasons"},"content":{"rendered":"

After months of speculation, US President Donald Trump confirmed he will be nominating Kevin Warsh<\/a> as the next chair of the US Federal Reserve. The appointment has been closely watched in the context of Trump\u2019s ongoing conflict with the Fed and its current chairman Jerome Powell.<\/p>\n

The immediate reaction to the announcement was a significant crash<\/a> in gold and silver markets. After months of record highs and stretched valuations, spot prices<\/a> for gold and silver dropped 9% and 28% respectively after the announcement. The US stock market also fell, with major indexes all reporting modest losses.<\/p>\n

However, in the context of concerns over Trump\u2019s interference with the Fed, the market crash can ironically be understood as an early vote of confidence in Warsh\u2019s independence and suitability for the role.<\/p>\n

Understanding why requires the context of Trump\u2019s ongoing conflict with the Federal Reserve, and the importance of central bank independence to our current global financial system.<\/p>\n

Trump\u2019s war with the Fed<\/p>\n

The last year has seen Trump in an unprecedented conflict with the Federal Reserve. <\/p>\n

Trump appointed current Chairman Jerome Powell back in 2017. However, the relationship quickly soured<\/a> when Powell did not cut interest rates as quickly as Trump wanted. In characteristically colourful language, Trump<\/a> has since called Powell a \u201cclown\u201d with \u201csome real mental problems\u201d, adding \u201cI\u2019d love to fire his ass\u201d.<\/p>\n

The war of words descended into legal threats. Trump\u2019s Justice Department announced<\/a> an investigation into Federal Reserve Governor Lisa Cook over alleged fraud in historical mortgage documents. Then last month, in a shocking escalation the Justice Department opened a criminal investigation<\/a> into Powell relating to overspending in renovations of the Federal Reserve offices.<\/p>\n

\"Federal<\/p>\n

Federal Reserve Chairman Jerome Powell has been targeted by President Trump for not slashing rates.
\n Shawn Thew\/EPA<\/p>\n

Both sets of allegations are widely viewed as baseless<\/a>. However, Trump has tried to use the investigation as grounds to fire Cook. The case is currently before the Supreme Court.<\/p>\n

Powell has hit back strongly at Trump, saying<\/a> the legal threats were<\/p>\n

a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.<\/p>\n

Powell received support from 14 international central bank chiefs<\/a>, who noted \u201cthe independence of central banks is a cornerstone of price, financial and economic stability\u201d. <\/p>\n

Historically, presidential interference with the Fed was a major cause of the stagflation crisis<\/a> in the 1970s. More recently, both Argentina and Turkey have experienced significant financial crises caused by interference<\/a> with central bank independence.<\/p>\n

Who is Kevin Warsh?<\/p>\n

Kevin Warsh<\/a> is a former banker and Federal Reserve governor, who previously served as economic advisor to both President George W Bush and President Trump.<\/p>\n

Originally Trump seemed likely<\/a> to favour the current director of Trump\u2019s National Economic Council, Kevin Hassett, for the job. However, Hassett was widely viewed<\/a> as being too influenced by Trump, intensifying fears about Fed independence.<\/p>\n

Warsh appears more independent and brings a reputation as an inflation \u201chawk\u201d.<\/p>\n

What is an inflation hawk?<\/p>\n

The Federal Reserve is responsible for setting US interest rates<\/a>. Put simply, lower interest rates can increase economic growth and employment, but risk creating inflation. Higher interest rates can control inflation, but at the cost of higher unemployment and lower growth.<\/p>\n

Getting the balance<\/a> right is the central role of the Federal Reserve. Central bank independence is essential to ensure this delicate task is guided by the best evidence and long-term needs of the economy, rather than the short-term political goals.<\/p>\n

An inflation \u201chawk\u201d refers to a central banker who prioritises fighting inflation, compared to a \u201cdove\u201d who prioritises growth and jobs. <\/p>\n

From Warsh\u2019s previous time at the Federal Reserve, he established a strong reputation<\/a> as an inflation hawk. Even in the aftermath of the global financial crisis of 2008, Warsh<\/a> was more worried about inflation than jobs.<\/p>\n

Given Trump\u2019s past conflict with Powell around cutting interest rates, Warsh might seem a curious choice of candidate. <\/p>\n

More recently though, Warsh<\/a> has moderated his views, echoing Trump\u2019s criticism<\/a> of the Fed and demands for lower interest rates. Whether this support will continue, or if his hawkish tendencies return leading to future conflict with Trump, remains to be seen.<\/p>\n

The market reaction<\/p>\n

The crash in gold and silver, and decline in stock markets, suggests investors view interest rate cuts as less likely under Warsh than alternative candidates. <\/p>\n

Gold and silver prices typically rise in response to instability or fears of inflation. <\/p>\n

The previous record highs were driven by many factors<\/a>, including global instability, concerns over Fed independence, and a speculative bubble.<\/p>\n

That Warsh\u2019s appointment has triggered a market correction in precious metals means investors expect lower inflation, and greater financial stability. The US dollar trading higher also supports this view.<\/p>\n

Read more:
\n Silver and gold hit record highs \u2013 then crashed. Before joining the rush, you need to know this<\/a><\/p>\n

The credibility of the Fed is at stake<\/p>\n

The past month has seen much discussion of the changing world order. Canadian Prime Minister Mark Carney<\/a> recently decried the end of the international rules-based order and called for a break from \u201cAmerican hegemony\u201d. <\/p>\n

The global dominance of the US dollar<\/a> is a crucial plank of US economic hegemony. Though Trump clearly remains sceptical of central bank independence, his appointment of Warsh suggests he recognises the importance of retaining the credibility of the US currency and Federal Reserve. <\/p>\n

Whether that recognition can continue to temper Trump\u2019s instinct to interfere with the setting of interest rates remains to be seen.<\/p>\n","protected":false},"excerpt":{"rendered":"After months of speculation, US President Donald Trump confirmed he will be nominating Kevin Warsh as the next…\n","protected":false},"author":2,"featured_media":450942,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-450941","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/450941","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=450941"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/450941\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/450942"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=450941"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=450941"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=450941"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}