Kevin Warsh is emerging as a leading candidate for Federal Reserve chairman when Jerome Powell’s term expires in May 2026, according to sources familiar with President-elect Donald Trump’s economic team planning.
The consideration of Warsh, who previously served as a Fed governor from 2006 to 2011, reflects Trump’s desire to reshape monetary policy leadership at the central bank. Trump has repeatedly criticized Powell’s interest rate policies during his first presidency and on the campaign trail.
Powell was reconfirmed as Fed chair in 2022 for a four-year term running until May 2026. The Fed chair serves at the pleasure of the president but traditionally completes their full term. Powell has not indicated whether he would step down early if asked by the incoming administration.
“The market is already beginning to price in potential changes to Fed leadership,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “Warsh’s background during the 2008 financial crisis gives him significant credibility with both Wall Street and policymakers.”
Warsh, 54, served as the youngest Fed governor in modern history when appointed by President George W. Bush. He was considered for Fed chair in 2017 before Trump ultimately selected Powell. During his Fed tenure, Warsh was involved in crafting the central bank’s response to the 2008 financial crisis.
The potential leadership transition comes as the Fed faces complex economic challenges. The central bank has been grappling with persistent inflation pressures while trying to maintain a strong labor market. The federal funds rate currently stands at 5.25%-5.50%, the highest level in over two decades.
Recent economic data shows mixed signals about the Fed’s progress on inflation. The personal consumption expenditures price index, the Fed’s preferred inflation measure, rose 2.3% year-over-year in October, still above the central bank’s 2% target but down significantly from peak levels above 7% in 2022.
“Whoever leads the Fed over the next four years will inherit a delicate balancing act,” said Karen Dynan, a former Treasury Department economist now at Harvard Kennedy School. “The next chair will need to navigate political pressures while maintaining the Fed’s independence and credibility.”
Trump has been a vocal critic of the Fed’s rate-setting decisions, frequently calling for lower interest rates during his first term. He nominated Powell in 2017 but later expressed regret about the choice, calling him an “enemy” after the Fed raised rates in 2018.
During the 2024 campaign, Trump suggested presidents should have more input into Fed decisions, statements that raised concerns among economists about central bank independence. The Fed’s ability to set monetary policy without political interference is viewed as crucial to its effectiveness.
Banking industry representatives have generally viewed Warsh favorably, seeing him as someone who understands financial markets and regulatory challenges. His experience during the 2008 crisis, when he helped design emergency lending programs, is seen as valuable given ongoing concerns about financial stability.
“Warsh brings a unique perspective having served during one of the most challenging periods in Fed history,” said Ian Katz, managing partner at Capital Alpha Partners, a Washington research firm. “His market experience before joining the Fed also gives him insights into how monetary policy affects financial conditions.”
Before joining the Fed, Warsh worked at Morgan Stanley, where he was involved in mergers and acquisitions. He has since served on various corporate boards and taught at Stanford University’s business school.
Democrats are likely to scrutinize any Fed nominee closely, particularly given Trump’s past criticism of Fed independence. Sen. Elizabeth Warren, D-Mass., a frequent critic of Wall Street influence at the Fed, has previously expressed concerns about nominees with extensive financial industry ties.
The nomination process typically involves Senate Banking Committee hearings followed by a full Senate vote. Republicans will control the Senate starting in January with a 53-seat majority, making confirmation likely for any Trump nominee.
Market participants are watching Fed leadership speculation closely, as any change in approach could significantly impact interest rate expectations. Bond yields and stock prices often move on signals about future monetary policy direction.
Powell has maintained that Fed decisions are based on economic data and the central bank’s dual mandate of price stability and full employment. He has resisted political pressure from both parties during his tenure.
The Fed chair position is among the most influential economic policy roles in government, with decisions affecting everything from mortgage rates to employment levels. The next chair will likely face ongoing challenges including evolving inflation dynamics, geopolitical tensions, and technological changes affecting the economy.
A formal nomination would not be expected until closer to Powell’s term expiration, allowing time for the incoming administration to fully evaluate candidates and economic conditions. The transition timeline would ensure continuity in Fed leadership during what could be a critical period for monetary policy.