How does Kevin Warsh's nomination for Federal Reserve Chair affect the intrinsic value of the US dollar

Trump announces the nomination of Kevin Warsh as the next Federal Reserve Chair, a decision that could have far-reaching impacts on U.S. monetary policy and the intrinsic value of the dollar. While the basic economic framework may remain stable, the long-term risk of depreciation of the dollar’s intrinsic value is increasing.

Policy Shift: From Tightening to Easing

According to an official announcement at the end of January, Warsh’s appointment may signal a significant shift in Federal Reserve monetary policy. The expected policy changes include two key directions: first, a move toward a combined strategy of rate cuts and balance sheet reduction; second, enhanced communication and coordination with the White House. This shift reflects the Trump administration’s long-term commitment to supporting capital markets and ensuring ample liquidity.

Continued Erosion of Federal Reserve Independence

However, a deeper issue lies in the gradual weakening of the Fed’s independence. As monetary policy decision-making becomes more intertwined with executive authority, the authority and credibility of the Fed as an independent financial institution will be questioned. This erosion of independence not only affects policy stability but also directly threatens the dollar’s role as the global reserve currency.

Long-term Risks to the Intrinsic Value of the Dollar

A loose monetary policy stance combined with declining Fed independence will lead to a continued depreciation of the dollar’s intrinsic value. As market confidence in the dollar’s stability wanes, the loss of dollar purchasing power will accelerate. In the long run, this policy framework may reinforce expectations of dollar depreciation, thereby impacting global financial markets’ demand for dollar holdings.