U.S. equity futures declined on Friday after reports suggested President Donald Trump had settled on a candidate to lead the Federal Reserve, with Kevin Warsh emerging as the likely nominee. Bloomberg News said the White House was preparing for a Warsh nomination, and Reuters reported Warsh met with the president at the White House on Thursday.
Prediction markets quickly shifted to reflect the news. The probability on Polymarket that Trump would nominate Warsh jumped to 94% from 33% a day earlier, according to the cited data, signalling that market participants were rapidly pricing in the possibility of a Warsh-led Fed.
Market participants generally view Warsh as a candidate who would be more inclined toward lower interest rates than current policy, though not as aggressively dovish as some other names reportedly under consideration. That group of alternative candidates included Kevin Hassett, Christopher Waller and Rick Rieder, who have been linked in various reports to more forceful easing agendas.
President Trump said he planned to announce his choice to replace Fed Chair Jerome Powell on Friday. The prospective nomination of Warsh is being read by many in markets as a tilt toward rate cuts, but also as a pick that may remain cautious about deploying large-scale monetary stimulus should inflationary pressures intensify.
Susannah Streeter, chief investment strategist at Wealth Club, was quoted noting Warsh’s profile: "He’s a former Fed governor, and while he did have a reputation as being an advocate of tighter monetary policy... he’s recently been publicly advocating for a fresh cut in interest rates, aligned with Trump’s thinking. However, his experience and past attitude imply he’s likely to hold the line if sharp inflationary pressures return."
In early trading, the U.S. dollar and Treasury yields edged up on growing expectations of a Warsh nomination. At 04:51 a.m., Dow E-minis were down 456 points, or 0.93%. S&P 500 E-minis were down 72.5 points, or 1.04%, while Nasdaq 100 E-minis were lower by 339.75 points, or 1.31%. Futures tied to the Russell 2000 index, which tends to be sensitive to interest rate moves, fell 1.63%.
The CBOE volatility index, commonly followed as a gauge of investor unease, held above its one-week highs reached in the previous session. It was up 1.95 points at 18.85.
Stocks were already volatile on Thursday, with the Nasdaq slipping more than 2% intra-session before finishing the day 0.7% lower. The S&P 500 dropped more than 1% at one point and ended Thursday down 0.1%.
Notable individual moves included Microsoft, which recorded its worst trading day since March 2020 after cloud revenue failed to meet expectations and sparked a wider technology sell-off. The software giant’s shares were down 0.7% in premarket trading.
Apple projected revenue growth for the March quarter of up to 16%, but warned that rising memory chip prices had begun to squeeze profitability. The iPhone maker’s shares were marginally lower in premarket trade.
Precious metal miners listed in the U.S. experienced sharp declines after bullion prices dropped by more than 5% and silver fell about 11%, prompting steep losses among gold and silver producers.
Overall, markets moved as investors digested the higher probability of a Fed chair who is seen as sympathetic to rate cuts but unlikely to embrace aggressive monetary stimulus in the face of resurgence in inflationary pressures. The week’s trading showed heightened sensitivity across technology stocks, smaller-cap names and commodity-linked equities to shifts in interest rate expectations.
Key points
- Markets reacted to reports that Kevin Warsh is the leading candidate to replace Jerome Powell, with prediction markets showing a sharp rise in the likelihood of a Warsh nomination.
- Equity futures and the CBOE volatility index moved lower and higher, respectively, as traders adjusted to shifting expectations for U.S. interest rates.
- Specific sectors affected included technology stocks, small-cap equities and precious metal miners, with Microsoft, Apple and gold/silver miners among names that moved sharply.
Risks and uncertainties
- Nomination uncertainty - The final selection could change market expectations and reprice risk across equities, bonds and the dollar, particularly for rate-sensitive sectors such as technology and small caps.
- Inflation sensitivity - Even if a Warsh-led Fed leans toward lower rates, his past caution on heavy monetary stimulus suggests markets remain exposed to the risk that a resurgence in inflationary pressures could prompt a policy response that tightens financial conditions.
- Commodity price volatility - Sharp moves in bullion and silver weighed on miners, illustrating the risk that commodity price swings can materially affect earnings and investor sentiment for resource companies.