Hedge Fund Trader Nominated to Lead the Fed

By John Ian Lau

Market puked. What caused it? One of the unknowns was Kevin Warsh, or rather, President Donald Trump’s nomination of the former Federal Reserve governor to chair the central bank—a development that caught many off guard until its announcement on Friday. Markets experienced one of the sharpest one-day wealth destructions in recent history, with over $5 trillion erased across assets.

The declines were stark:

• Precious metals led the rout: Gold fell 10.9%, erasing about $3.5 trillion in market value; silver dropped 37.2%; platinum declined 10.4%; and palladium slid 12.9%. These moves undermined the traditional safe-haven status of commodities amid policy uncertainty.

• Equities followed suit, though with more modest percentage losses: The Nasdaq shed 0.94%, wiping out approximately $282 billion; the S&P 500 dipped 0.43%, erasing about $258 billion. High-valuation technology stocks bore much of the pressure.

• Cryptocurrencies mirrored the broader risk-off sentiment: Bitcoin declined 6%, losing roughly $96 billion; Ethereum fell 7%, shedding about $22 billion.

In an era of instant liquidity and algorithmic trading, such synchronized declines highlight heightened volatility as the baseline, with asset correlations spiking to near unity and leaving few places for investors to seek refuge.

Spot gold plunged as much as 10.9% to around $4,864 per troy ounce, marking one of its steepest daily drops since the 1980s, while silver cratered over 37% to about $84.63, its largest one-day decline in decades. The U.S. dollar index climbed more than 2%, reversing recent weakness, as markets interpreted Warsh’s hawkish credentials as a signal for tighter policy ahead, diminishing the appeal of non-yielding precious metals.

In a decision highlighting Wall Street’s persistent influence on U.S. economic policy, Trump has nominated Warsh, a longtime partner at Stanley Druckenmiller’s Duquesne Family Office, to succeed Jerome Powell. The nomination, announced Friday, is subject to Senate confirmation, where Warsh, 55, faces potential hurdles amid concerns over Fed independence and Republican opposition on unrelated issues. If approved, his return would cap a 15-year hiatus from the institution he left in 2011, partly over qualms about its quantitative easing expansion.

Warsh’s path blends high-stakes finance with crisis-era policymaking. After graduating from Stanford and Harvard Law, he joined Morgan Stanley in 1995, advancing to vice president and executive director in mergers and acquisitions by 2002, gaining deep insights into corporate finance and market mechanics. Appointed by President George W. Bush in 2006 as the youngest Fed governor at 35, Warsh served through 2011, emerging as a pivotal figure in the 2008 financial crisis response. Ben Bernanke hailed him as a “closest adviser and confidant” for his “political and markets savvy,” tasking him as the Fed’s Wall Street liaison. Warsh orchestrated the shift of Goldman Sachs and Morgan Stanley to bank holding companies for emergency aid access, represented the U.S. at G-20 meetings, and coordinated with Asian central banks on global stability.

His Fed tenure unfolded against stark economic metrics: The balance sheet swelled from roughly $900 billion in 2008 to over $2.2 trillion by 2011, as unemployment hit 10% and GDP shrank 4.3% in 2009. Warsh avoided formal dissents but expressed private inflation worries, resigning as QE2 launched in 2010. In a subsequent Wall Street Journal op-ed, he decried loose policies for fostering asset bubbles and protectionism, though inflation averaged under 2% through the decade.

Post-Fed, Warsh’s 15-year partnership with macro investing legend Stanley Druckenmiller at Duquesne sharpened his critique. He labeled QE a “reverse Robin Hood” for widening inequality via asset inflation without aiding broader growth. In a 2025 Hoover Institution talk, he termed recent inflation “the greatest macroeconomic policy mistake in 45 years,” akin to the 1970s under Arthur Burns, and pushed for price stability over fiscal overreach. Warsh faulted 2022’s delayed rate hikes for eroding Fed credibility amid post-Covid stimulus, advocating rules-based policy and balance-sheet reduction. He has called QE a “one-way street” risking bubbles, as equities soared during pandemic expansions, and recently proposed a new Treasury-Fed accord to redirect liquidity from markets to the economy via rate cuts.

This hawkish stance contrasts with Powell’s pragmatic evolution. Powell, 73, without an economics Ph.D.—a rarity for recent chairs—draws from Princeton politics, Georgetown law, Dillon Read banking, and Carlyle Group private equity before Treasury roles under George H.W. Bush and Fed Board entry in 2012. Appointed chair by Trump in 2017 and reappointed by Biden, Powell expanded the balance sheet to nearly $9 trillion during Covid, then hiked rates aggressively as inflation peaked at 9.1% in 2022. His data-driven, transparent approach, inspired by Paul Volcker’s inflation battles, saw unemployment drop below 4% in 2023, though inequality persisted. Warsh’s trading-honed vigilance might prioritize preemptive inflation controls and faster tightening over Powell’s adaptive caution.

Wall Street’s response to the nomination has been largely positive, viewing Warsh as a credible, independent choice amid fears of a more pliant loyalist. JPMorgan Chase CEO Jamie Dimon praised Warsh as “highly respected and experienced… with integrity and a dedication to making our country better.” Wells Fargo’s Charles Scharf and PJT Partners’ Paul Taubman echoed the sentiment, while Chevron CEO Mike Wirth called him “uniquely prepared in judgment, experience, and temperament.” Economists offered mixed views, with some like Renaissance Macro’s Neil Dutta labeling it “the worst” among options, but others noting market comfort with Warsh’s independence.

Warsh aligns with a global trend of finance veterans helming fiscal posts. U.S. examples include Robert Rubin (Goldman co-chair, Treasury secretary 1995-1999), who managed the Asian crisis; Henry Paulson (Goldman CEO, Treasury 2006-2009), behind 2008 bailouts; and Steven Mnuchin (Goldman alum, Treasury 2017-2021), overseeing Covid aid. Internationally, Rishi Sunak (Goldman analyst, hedge fund partner) was U.K. chancellor 2020-2022 for pandemic support; Emmanuel Macron (Rothschild banker) served as France’s economy minister pre-presidency; Mark Carney (Goldman veteran) led Bank of Canada and Bank of England before Canadian premiership in 2025; and Mario Draghi (Goldman director) chaired the ECB then became Italy’s prime minister.

Unlike technocrats and academic-oriented bureaucrats, Warsh’s views are shaped by real-time Wall Street insights and private-sector investing, making him a rare connector between policy, finance, and elite networks.

Will Warsh be the dove the President has been seeking? His history suggests inflation hawkishness, but recent rate-cut advocacy hints at adaptability in a high-debt landscape. Senate hearings will scrutinize if this hybrid figure can balance independence with the administration’s goals. If a nomination can cause such violent moves in markets, then we have much more fun to look forward to.