Summary:

• Reports Trump met Kevin Warsh to discuss being next Fed chair
• Yellen’s term set to end in early 2108
• USD jumps higher on the news

Several news outlets have been reporting that US president Trump has held a meeting with Kevin Warsh about the latter becoming the next Fed chair. Warsh was the youngest Fed governor in history at just 35 before leaving in 2011 and he currently is an advisor to to the president. The current Fed chair, Janet Yellen, will come to the end of her term in February 2018 and whilst there is still a fair chance that she will be re-elected, there is also plenty of speculation that she will be replaced.   

Warsh has been openly critical of the Fed in its current guise stating that the central bank should engage in a fundamental rethink of its strategy and how it thinks about the world. He also criticized the dot plot in saying that it had been wrong for 9 years and has stated that there is a huge amount of waste in the $2.5 B Fed budget. 

Warsh certainly would fit the bill of someone that could be selected by Trump in that he has good White house connections already, with his father-in-law Ronald Lauder a friend of the president. Trump has often seemed to favour loyalty over competence when selecting candidates for certain high level roles and it would be no surprise if he follows this tack once more. 

Yellen has earned a reputation for being of a dovish persuasion despite presiding over several rate hikes and recently confirming the unwinding of QE. Warsh would likely be more hawkish in his approach and was an open critic of the implementation of the QE programme when he was on the board. 

 USDJPY jumped higher following the reports on Warsh meeting with Trump to discuss being the next Fed chair. Source: xStation

The initial reaction in the markets was a clear move higher in the US dollar with the USDJPY spiking to its highest level of the day and recouping all of the post PCE release decline and some. Baring in mind that these reports are just of a meeting and stop short of confirming Warsh will be offered the role, as well as a subsequent story which stated that Trump has met with others regarding the role too, the move has been pared back a little. However, what is clear is that the markets have an ear to the ground as far as the next Fed chair goes and any further announcements could well see larger moves in the future.