After months of speculation, US President Donald Trump confirmed his nomination. Kevin Warsh As the next Chairman of the Board of Governors of the United States Federal Reserve System. This appointment is attracting attention in light of the ongoing conflict between President Trump and the Federal Reserve and its current chairman, Jerome Powell.
The immediate reaction to this announcement was huge. crash in the gold and silver market. After months of record highs and soaring valuations, spot price Following the announcement, gold and silver fell by 9% and 28%, respectively. The US stock market also fell, with all major indexes recording small declines.
But against the backdrop of concerns about President Trump’s interference with the Fed, the market crash could ironically be understood as an early vote of confidence in Warsh’s independence and suitability for the role.
To understand why, you need to understand the context of President Trump’s ongoing conflict with the Federal Reserve and the importance of central bank independence to the current global financial system.
President Trump’s war with the Fed
Last year, President Trump experienced an unprecedented conflict with the Federal Reserve.
President Trump appointed current Chairman Jerome Powell in 2017, but relations quickly deteriorated. sour When Powell didn’t cut rates as quickly as Trump had hoped. With a distinctive colorful language, playing cards He has since called Mr Powell a “clown” with “some serious mental issues” and added: “I want to fire his ass.”
The war of words escalated into legal threats. Trump administration’s Department of Justice announced Investigation of Federal Reserve Board member Lisa Cook over allegations of fraud in past mortgage documents. And last month, in a shocking escalation, the Justice Department opened a criminal investigation. investigation Remarks to Mr. Powell regarding excessive spending on Federal Reserve office renovations.
Sean Hsu/EPA
Both allegations are widely viewed as: baseless. However, President Trump is attempting to use this investigation as the basis for firing Cook. This case is currently before the Supreme Court.
Mr. Powell strongly retaliated against Mr. Trump. I’m saying legal threats are
This is the result of the Federal Reserve setting interest rates based on its best assessment of what will serve the public, rather than following the wishes of the president.
Mr. Powell received support from 14 international organizations. central bank chief“Central bank independence is the basis of price, financial and economic stability,” he pointed out.
Historically, presidential intervention at the Fed has been the main cause. stagflation crisis In the 1970s. Recently, both Argentina and Turkey experienced significant financial crises caused by factors such as: interference It has central bank independence.
Who is Kevin Warsh?
Kevin Warsh He is a former banker and head of the Federal Reserve and previously served as an economic advisor to Presidents George W. Bush and Trump.
Trump was originally like that. probably The aim is to appoint Kevin Hassett, President Trump’s current chairman of the National Economic Council, to the position. However, Hassett is widely Saw It is believed that the Fed is being influenced too much by President Trump, and there are growing concerns about the Fed’s independence.
Warsh appears to be more independent, bringing with him a reputation as an inflation hawk.
What is an inflation hawk?
The Federal Reserve System is responsible for Setting US interest rates. Simply put, lower interest rates can increase economic growth and employment, but they run the risk of causing inflation. Higher interest rates can reduce inflation, but at the cost of higher unemployment and lower growth rates.
get balance On the right is the central role of the Federal Reserve System. Central bank independence is essential to ensure that this delicate task is based on the best evidence and the long-term needs of the economy, rather than short-term political goals.
Inflation “hawks” refer to central bankers who prioritize fighting inflation, compared to “doves” who prioritize growth and employment.
Mr. Warsh has established strong policy since his last time at the Fed. reputation As an inflation hawk. In the aftermath of the 2008 global financial crisis, Warsh They were more concerned about inflation than employment.
Mr. Warsh might seem an interesting choice given Mr. Trump’s past conflicts with Mr. Powell over interest rate cuts.
Although recently, Warsh He has moderated his views and aligned himself with President Trump’s. criticism Fed demands and demands for lower interest rates. It remains to be seen whether this support will continue or whether his hawkish tendencies will return, leading to a future confrontation with Trump.
market reaction
The collapse in gold and silver and the stock market decline suggest that investors see rate cuts less likely under a Warsh administration than under the alternative.
Gold and silver prices typically rise in response to concerns of instability or inflation.
The driving force behind the new record high price was many factorsglobal instability, concerns about Fed independence, and speculative bubbles.
Warsh’s appointment triggered a correction in precious metals markets, meaning investors are expecting lower inflation and greater financial stability. The strengthening of the US dollar supports this view.
Fed credibility is at stake
Over the past month, there has been much discussion about the changing world order. prime minister of canada mark carney He recently denounced the end of the international rules-based order and called for a break from “American hegemony.”
global US dollar advantage It is an important pillar of US economic hegemony. While President Trump clearly remains skeptical of central bank independence, Warsh’s appointment suggests that he recognizes the importance of maintaining the credibility of the U.S. currency and the Federal Reserve.
It remains to be seen whether this perception will continue to rein in President Trump’s instincts to interfere in setting interest rates.