Gold, Silver, and Bitcoin All Sway... Why Did Trump Choose Kevin Warsh? [Weekend Money]

"Trump's True Intent Was Neither 'Hawk' Nor 'Dove'"
"What Trump Wants Is a 'Healthy' Weak Dollar"
"U.S. Dollar Index Expected to Follow a 'Nike-Shaped' Path This Year"

Why was Kevin Warsh chosen as the next U.S. Federal Reserve (Fed) Chair nominee? This is the question many investors are likely to have asked themselves when the so?called "Warsh shock" rattled global stock markets and even shook the trajectories of gold, silver, Bitcoin, and the U.S. dollar.

In a foreign exchange report released this week, A?Min Kwon, a researcher at NH Investment & Securities, analyzed that this market?moving choice was not a simple question of whether his monetary policy stance was hawkish (favoring monetary tightening) or dovish (favoring monetary easing). Kwon argued that, "Despite the market's hawkish caution, there is a separate inner motive of Trump (U.S. President Donald Trump) behind the choice of Kevin Warsh."

United Press International Yonhap News Agency

If it had been a simple matter of "hawk or dove," President Trump's choice should have been not former Fed Governor Kevin Warsh, but "dove" Kevin Hassett, Chairman of the National Economic Council (NEC). Given Warsh's past track record, which places him in the hawkish camp, it is inconceivable that the administration did not anticipate that his nomination as the next Fed Chair would fuel tightening concerns and trigger a market plunge. Moreover, Hassett has been regarded as the strongest candidate for the next Fed Chair from the outset, as his stance has aligned with President Trump's long?standing calls for interest rate cuts.

Accordingly, Kwon focused on the strategy of dollar hegemony as the background to President Trump's decision. He first pointed out that, although President Trump brushed off concerns about a weaker dollar at the end of January by calling it "great," the subsequent extension of the Miran report suggested that "maintaining the status of a strong dollar while improving the trade deficit through a weaker dollar" is what truly matters. Kwon said, "He has been consistently making explicit pro?weak?dollar remarks, but this obviously does not mean a weakening of the dollar's status in terms of its fundamental value," adding, "It is in the same vein that, the day after Trump's comments, Treasury Secretary Bessent stepped in to clarify that the United States has always adhered to a strong?dollar policy."

The analysis is that what President Trump wants is a "healthy weak dollar" in which the dollar's fundamental status, that is, its currency hegemony, is preserved while the exchange rate is managed politically. Kwon also noted, "There are differences between hawks and doves in terms of their stance on rate cuts and balance sheet reduction, but the most fundamental difference between Warsh and Hassett lies in their attitude toward 'independence'," explaining, "Hassett focused on 'separation from politics,' whereas Warsh emphasized 'building trust by faithfully fulfilling the Fed's own mandate and exercising restraint in its role'." This is also regarded by the market as a key reason why former Governor Warsh was tapped.

Kwon said, "The triple weakness of rising interest rates, falling stock prices, and a weak dollar is not the kind of weak dollar Trump wants," adding, "Having already gone through fiscal concerns such as reciprocal tariffs and a sovereign credit rating downgrade, Trump, ahead of the midterm elections, will be most wary of a steep spike in interest rates. This will lead to a trend in which the central bank in effect becomes part of the government and provides support." In this context, former Governor Warsh is seen as the most suitable figure. Kwon added that Warsh "is also proactive about easing financial regulations" and that "it is hard to view him as an ultra?hawk."

Therefore, Kwon concluded, "Warsh, who seeks to protect dollar hegemony while enhancing the Fed's own credibility, appears to align with Trump's stance of favoring a 'healthy' weak dollar," and projected that, "Given the potential for coordination with the administration going forward, it will rather be possible for the dollar to stabilize downward with limited surges in interest rates." With the exception of the 2005 nomination of Ben Bernanke as Fed Chair, the dollar has generally weakened one to two months after a Fed Chair nomination.

This year, the U.S. Dollar Index is expected to trace a "Nike?shaped" trajectory. Kwon said, "For the time being, further downward stabilization of the Dollar Index is expected," forecasting that additional dollar weakness and continued downward stabilization of the dollar?won exchange rate will persist through the first and second quarters.