Voya Views: What Warsh Nomination Means for Markets

Erin Orekhov (00:00) 
Good morning. We received the news early this morning that President Trump has decided to nominate Kevin Warsh as the next Fed chair. I wanted to get your initial reactions to that. 

Eric Stein (00:11) 
So first off, I'm glad it's out there. It's something we've been talking about for a long time. the markets thought about it as two Kevins. Kevin Hassett was the front runner for a while. Kevin Warsh, who got ultimately got President Trump's voter confidence, kind of was the front runner toward the end. And even Rick Reeder came in there as kind of a dark horse candidate. So lots of moving parts, but certainly for Kevin Warsh, who served at the Fed in 2006 to 2011. He's known by markets and known by many around monetary policy circles. 

Erin Orekhov (00:41) 
And what do you think that Fed Chair Kevin Warsh is going to do in terms of policy? Like, what are rate expectations now? Are they moving for 2026? And then also maybe a little bit on Fed independence under Warsh. 

Eric Stein (00:56) 
Yeah, so great question. I'll tackle the independence first. I do think from a market perspective, first off, still needs to be confirmed by the Senate and just given all the investigations into the Fed and what we've heard from various senators that they don't want to confirm someone until those investigations get dropped. That process could be more contentious than normal. I do think Warsh is more palatable to some of those senators on the fence than a Kevin Hassett because he's viewed as more independent than the administration. He's certainly gotten closer to the administration recently, but given that he served as a Fed governor, you know, multiple, multiple administrations ago. And so, yes, I expect the concept of Fed independence to still be discussed, but I do expect Warsh to be more palatable to most of people concerned with that. You know, Warsh's central bank identity, if you will, is really as a hawk, but to be more specific, people typically think of hawks as higher rates. It's really more with the balance sheet. Kevin Warsh was at the Fed again in 2006 to 2011. 

Lots going on in the great financial crisis with the balance sheet. And so it was really those subsequent QEs, QE2 and QE3, that Warsh was a more vocal critic of from a hawkish perspective, both when he was at the Fed at the tail end of his time, but also when he left the Fed, after he'd write op-eds that we should not have such a large balance sheet. So I do expect him to be more hawkish than others, but I don't expect necessarily he's not going to cut rates if the economy warrants it. think he's more balance sheet hawkish and will be more pragmatic from a rate perspective. 

Erin Orekhov (02:23) 
And then any implications for US dollar and equity markets? Eric Stein (02:27) The knee-jerk reaction we saw this morning is a steepening of the curve. So higher rates up, short-term rates lower, but a stronger dollar, given that he's viewed as more hawkish. And also equities were down, again, this knee-jerk reaction. I don't expect equities to do very poorly under him, but all else equal, he's viewed as more hawkish than others. And so you see a stronger dollar as well as equities down this morning.

Erin Orekhov (02:53)
And then last question in our last CIO roundtable, our CIO of Multi-Asset Strategies and Solutions, Barbara Reinhard, mentioned that every new Fed chair is tested early in their term. So any thoughts on what we might expect there for Fed Chair Warsh? 

Eric Stein (03:10) 
I agree with Barbara. There does seem to be a moment that every Fed chair is tested, from a market perspective or a macro perspective or even, who knows, even a political perspective. There's so much going on with that job. But I do think here, Warsh's time at the Fed, 06 to 2011, in the middle of the global financial crisis that no one saw coming, or at least very few saw coming, and the Fed literally had to reinvent the playbook. His experience there, where my sense was, he was the one most tied to markets, given that he had a background as a mergers and acquisitions banker before his time at the Fed, actually helped the Fed and helped his credibility as a central banker with his colleagues. I'll expect him to lean on that when he hits crises going forward, and I'm sure he'll certainly hit one. 

Erin Orekhov (03:56) 
Great, thanks Eric for these insights, it's super helpful. 

Eric Stein (03:59) 
Great to be with you.