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DBS Group Research’s Philip Wee highlights how the US Senate confirmation hearing for Kevin Warsh as Fed Chair could reshape the risk premium on the Dollar. He argues that a messy transition from Jerome Powell, including a possible “Two Popes” leadership dispute, may erode the USD’s haven appeal just as tensions with Iran intensify.
Trump–Powell–Warsh showdown unsettles Fed
“The US Senate Banking Committee is scheduled to conduct a confirmation hearing of the nomination of Kevin Warsh as Fed Chair on April 21 at 10:00 AM ET (or 10:00 PM SGT). The Trump administration is aggressively pushing for Warsh to take over by the end of Jerome Powell’s term on May 15.”
“Understandably, Powell has refused to resign under the cloud of the DOJ probe to prevent the Trump administration from characterising his departure as a quiet firing or an admission of guilt before vacating office. On March 18, Powell publicly stated that the investigation was a pretext to undermine Fed independence.”
“He invoked the holdover provision of the Federal Reserve Act to continue serving as Fed Chair until a successor is appointed, while vowing to serve his full term as Fed Governor until January 2028. Powell is effectively forcing the DOJ to either produce a smoking gun or publicly clear him before he steps down.”
“President Trump has responded by threatening to fire Powell or designate an Acting Fed Chair (potentially Stephen Miran) upon Powell’s term expiry on May 15. The President’s strategy is legally murky and could be challenged by the Board of Governors that backs Powell. A “Two Popes” scenario, in which Powell claims legal leadership while the other claims executive authority, could emerge.”
“The endgame of this Fed transition is about the risk premium associated with a contested Fed leadership. Markets will likely treat any “Two Popes” scenario as a referendum on the Fed’s independence, in which Warsh’s alignment with the White House will come under heavy scrutiny.”
“Crucially, the hearing has the potential to undermine the current USD’s haven status just before the expiration of President Trump’s 10-day ceasefire with Iran on April 22.”
