US President Donald Trump has named former Federal Reserve Governor Kevin Warsh as his pick to be the next chairman of the US central bank.
Trump said in a post that he was nominating Warsh and has known the economist "for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best".
"On top of everything else, he is 'central casting' and he will never let you down."
Investors see Warsh as a "best-of-both-worlds" candidate, analysts said, both an orthodox pick who could restore faith in institutional independence, but with a hawkish history.
Dan Coatsworth of AJ Bell noted that the dollar climbed on the belief that "Warsh won’t be a marionette for the Trump administration," suggesting that the aggressive rate cuts Trump desires are far from guaranteed.
Saxo’s Neil Wilson adds that a conventional candidate is "negative for the speculative gold rampup" because Warsh isn't seen as a "Trump stooge."
While Warsh has recently voiced support for lower rates, his core philosophy favours a much smaller Fed balance sheet.
This hawkish reputation was already pushing long-term Treasury yields higher.
“We think that Kevin Warsh’s potential nomination as Federal Reserve Chair should be seen less as a shift in interest-rate policy and more as a signal on how the Fed would manage its balance sheet," Lale Akoner, eToro global market analyst, added.
"Warsh's appointment would imply a faster move to reduce the Fed’s balance sheet once conditions allow. That expectation has been associated with a steeper yield curve and some near-term dollar strength, rather than outright tighter monetary policy."
The mood was further lifted by a bipartisan deal to avert a US government shutdown, providing what XTB research director Kathleen Brooks calls a "massive relief for consumer and business confidence."
The deal, which splits controversial Department of Homeland Security funding into a separate two-week patch, clears the path for 96% of the government to stay open through September.
With a shutdown avoided and a Fed insider likely at the helm, the dollar is finding renewed strength as the risk of political chaos recedes.
Warsh, Trump noted, is currently a visiting fellow in economics at the Hoover Institution and a lecturer at the Stanford Graduate School of Business, as well as being a partner of Stanley Druckenmiller at the Duquesne family office.
He wrote a 2014 independent report to the Bank of England proposing reforms to enhance transparency and deliberation at the monetary policy committee, with parliament adopting the recommendations, which included reducing meetings from 12 to 8 per year and publishing detailed minutes alongside policy decisions.
Warsh became the youngest ever Fed Governor at 35 and served as a member of the board of Governors of the Federal Reserve from 2006 until 2011, before which he served as special assistant to the president for economic policy under George W Bush from 2002 to 2006.
From 1995 to 2002, according to Wikipedia, he was a member of Morgan Stanley's mergers & acquisitions department.