Tuesday’s Selloff Was Less About Greenland, and More About Kevin Warsh
Will Trump make the right choice for Fed Chair?
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Stocks were rocked on Tuesday, and the selloff was widely attributed to President Trump’s handling of the Greenland controversy. I believe the U.S. and Denmark will reach a compromise, as stated here.
What if Tuesday’s price action was less about Greenland, and more about President Trump’s choice to succeed Jerome Powell as Fed Chair?
Late last week, Kevin Warsh became the clear favorite to succeed Jerome Powell as Fed Chair. Powell’s term is scheduled to end on May 15 of this year.
According to Polymarket, Warsh is now the prohibitive favorite, with a greater than 50% chance of securing the nomination.
This is a significant development, as Warsh is seen as a hawk on inflation. As a Fed governor from 2006 through 2011, Warsh favored tight monetary policy and opposed quantitative easing. This would seem to put him in opposition to President Trump, who has made it clear that he wants the Fed to lower interest rates.
Warsh’s aversion to inflation and easy money makes him the right choice, albeit an odd choice considering Trump’s stated desire for easing. Despite massive progress on the inflation rate, the consumer price index remains well above 2%, both at the headline and core.
Earlier this decade, rates were kept too low for too long, resulting in the highest consumer inflation levels in over 40 years. The CPI inflation rate peaked at 9.1% in June of 2022.
Gauging Warsh's Impact
What would be the impact of Warsh's ascension to Fed Chair? Under Powell, stocks have benefited from years of low interest rates and easy monetary policy. Tuesday’s price action could be a hint at how a stimulus-dependent stock market could react to a hawk at the helm of the Fed.
That reaction wasn’t pretty. The S&P 500 fell 2%. After reaching an all-time high earlier this month, the large-cap index is trading below its 50-day moving average (blue) for the first time this year.
At the time of publication, Ponsi had no positions in any securities mentioned.
