Dollar pares gain, bonds trim drop as Trump picks Warsh for Fed

President Donald Trump plans to nominate former Federal Reserve governor Kevin Warsh to be the next chair of the central bank, a move that could usher in a new era for U.S. monetary policy.

Warsh, an experienced Wall Street veteran and former Fed official, has recently advocated for lower interest rates and a smaller central bank balance sheet. Analysts broadly see him as a credible candidate who will likely secure Senate confirmation, but they are closely watching to see how he would balance political pressure with the Fed's mandate.

A Central Bank Under Pressure

The nomination arrives at a turbulent time for the Federal Reserve. The institution is grappling with internal policy divisions amid a complex economic outlook, as some members push for lower rates to boost growth while others want to hold firm to contain inflation.

This internal debate is amplified by external challenges to the Fed's independence and credibility. President Trump has repeatedly criticized current chair Jerome Powell and the Federal Open Market Committee (FOMC) for not cutting interest rates more aggressively.

Simultaneously, the central bank faces legal scrutiny. The Supreme Court recently heard arguments on whether President Trump has the authority to remove Governor Lisa Cook. The Department of Justice has also issued subpoenas to the Fed and Powell related to renovations at the bank's offices, a move widely seen by analysts as an assertion of executive power.

Who Is Kevin Warsh?

Kevin Warsh is currently a fellow at Stanford University's Hoover Institution. His career began on Wall Street at Morgan Stanley before he served in the George W. Bush administration on the National Economic Council and as a Federal Reserve governor.

Historically known as a policy "hawk"—an official who favors tighter monetary policy to fight inflation—Warsh's public stance has recently shifted to align more closely with President Trump's views.

He has publicly supported calls for lower interest rates, telling Fox News that Trump's frustration with Powell's policies was justified. In a Wall Street Journal op-ed last fall, Warsh described the Fed's track record under Powell as one of "unwise choices" and argued for reducing the central bank's balance sheet. He has also warned against "mission creep," suggesting the Fed has expanded its role too far.

Market Reaction and Confirmation Outlook

Analysts expect Warsh to be viewed as a reliable choice by financial markets and anticipate a smooth confirmation process.

"Warsh's experience on the Fed, where he developed a reputation as a very competent crisis fighter with a good understanding of financial markets, and his long track record of independent thought about monetary policy mean he is a credible nomination," said Luke Bartholomew, deputy chief economist at Aberdeen Investments.

Christopher Hodge, chief economist at Natixis, noted that Warsh "should have no problem being confirmed by the Senate" and would likely be seen as "fairly credible by the markets."

How Would Warsh Steer Monetary Policy?

While Warsh has recently pushed for lower rates and a reduced Fed balance sheet, analysts are divided on how his leadership would translate into policy decisions once he is in the role. The key question is whether he would prioritize short-term stimulus or revert to his long-held hawkish principles.

The Case for Lower Rates

Hodge identifies Warsh as a supply-side optimist, meaning he believes that policies like tax cuts and deregulation can boost long-term economic productivity. This view, Hodge writes, could serve as a "justification to rapidly lower rates."

However, James Angel, an associate professor of finance at Georgetown University, voiced a common concern. He noted that Warsh "has the background and experience that we expect for a Fed Chair" but added, "My only concern with any Trump appointee is whether he promised Trump that he would bow down to him and lower interest rates too much to try to make things look good at election time."

Will His Hawkish Instincts Return?

Several analysts believe Warsh’s hawkish past could re-emerge, especially if inflation persists.

"It's reasonable to assume that he told the President he favors reducing interest rates today, otherwise he would not have been nominated," wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "But Mr. Warsh's hawkish instincts might return once he has secured the Chairmanship."

Tombs pointed out that during his previous tenure at the Fed, Warsh prioritized controlling inflation over employment during a crisis. He concluded that if inflation remains near 3%, Warsh would likely focus more on his historical legacy than on pleasing the president, making "easier-than-otherwise policy under Mr. Warsh... not a given."

Hodge echoed this, stating that if productivity gains from deregulation don't appear and inflation remains "sticky," Warsh would "likely pivot to a more hawkish stance."

The Limits of a Chair's Power

Even as chair, Warsh would be just one of 12 voting members on the FOMC.

Bartholomew of Aberdeen Investments projects that Warsh "will almost certainly push for lower interest rates," consistent with a forecast of two 0.25% cuts later this year. However, he added that Warsh "is unlikely to make much progress in shifting the Fed's operating framework and shrinking its balance sheet" on his own.

What This Means for Near-Term Rate Cuts

Following its January meeting, the Federal Reserve held interest rates steady. Chair Powell described the current policy rate as being "within plausible estimates of neutral," meaning it is neither stimulating nor restricting the economy.

Trump's announcement to nominate Warsh has not significantly altered market expectations for a rate cut. According to the CME FedWatch Tool, bond futures traders are pricing in a 48.5% probability of a rate cut in June, up slightly from 47% before the news.

A Reuters poll of 15 analysts projects the Russian rouble will trade at approximately 88.3 to the U.S. dollar within the next 12 months. This forecast suggests a 14% decline from its current value but marks an 8.7% upward revision from last month’s predictions.

The rouble has already gained 3.5% since the beginning of the year, following a surprising 45% rally in 2025. While a stronger currency helps the central bank manage inflation, it also puts pressure on state budget revenues and exporters.

Geopolitics and Gold Bolster Rouble Outlook

Changing market dynamics have prompted some analysts to revise their forecasts significantly. Sberbank, for instance, has adjusted its projection from 100 roubles per dollar to 90. The bank attributes this shift to a rally in gold and other metals, as well as evolving geopolitical factors that could support the currency throughout the year.

"Negotiations between Russia, the United States, and Ukraine may extend throughout the year, which could support demand for rouble-denominated assets," Sberbank analysts noted in a report.

Negotiators from Ukraine and Russia met in Abu Dhabi last weekend to discuss territorial issues and are expected to resume talks on Sunday. Moscow's core demand remains that Kyiv cedes the entire Donbas industrial region.

Fundamental Drivers and Economic Support

Beyond geopolitics, several core economic factors are underpinning the rouble's stability. Mikhail Vasilyev of Sovkombank highlighted a combination of drivers supporting the currency:

• A consistent trade surplus

• Subdued demand for imports

• The high key interest rate set by the central bank

• Sales of yuan from state reserves under budget rules

• General optimism for an improving geopolitical situation

Economic Growth, Inflation, and Rate Cut Path

Looking at the broader economy, analysts have slightly downgraded their forecast for Russia's GDP growth in 2026 to a median of 1%, down from 1.1% in the previous month's estimate. Concurrently, the 2026 inflation forecast has been revised upward from 5.2% to 5.3%.

These figures are influencing expectations for monetary policy. Analysts now anticipate a more conservative approach from the central bank, forecasting a half-percentage-point cut in the key interest rate to 15.5% in the first quarter of 2026. This is a more cautious view than last month's expectation of a cut to 15%.

The central bank has two rate-setting meetings scheduled for the first quarter. Following a recent spike in inflation, analysts expect policymakers to hold the rate steady at the first meeting on February 13.

"Macroeconomic data so far does not provide a clear indication that the Bank of Russia is ready to cut the key rate," said Nikolai Dudchenko, an analyst at Finam brokerage.

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Venezuela's interim President Delcy Rodriguez has signed a landmark reform bill designed to open the nation's state-run oil sector to private investment. The move fulfills a major demand from the United States and marks a significant shift in the country's economic policy.

The bill was signed into law on Thursday, just hours after being passed by the National Assembly, which is dominated by Rodriguez's United Socialist Party. During a signing ceremony with state oil workers, Rodriguez framed the reform as a crucial step toward a better economic future.

"We're talking about the future," she said. "We are talking about the country that we are going to give to our children."

Interim President Delcy Rodriguez at the signing ceremony for the oil sector reform bill.

This legislative action follows intense pressure from the Trump administration, which began after the US military's abduction of former leader Nicolas Maduro and his wife on January 3. President Trump had explicitly warned Rodriguez that she could "pay a very big price, probably bigger than Maduro" for failing to comply with his demands to open the oil sector.

Key Changes in Venezuela's Oil Law

The new legislation introduces several fundamental changes aimed at attracting foreign companies, many of which have been wary of investing in Venezuela. The core components of the bill include:

• Private Sector Control: The law gives private firms control over the sale and production of Venezuelan oil.

• External Dispute Resolution: It mandates that legal disputes be resolved in courts outside of Venezuela, addressing a long-standing concern from foreign companies about the domestic judicial system.

• Royalty Cap: Government-collected royalties on oil activities will be capped at 30 percent.

These reforms are designed to create a more appealing environment for outside petroleum firms, who have been hesitant to invest due to the country's history of political instability and economic turmoil under Maduro.

US Loosens Sanctions in Response

Coinciding with Rodriguez signing the bill, the Trump administration announced it would ease some of the sweeping sanctions imposed on Venezuela's oil industry in 2019.

The U.S. Department of the Treasury stated it would now permit limited transactions involving the Venezuelan government and its state oil company, PDVSA. These transactions are specified as those "necessary to the lifting, exportation, reexportation, sale, resale, supply, storage, marketing, purchase, delivery, or transportation of Venezuelan-origin oil" by established U.S. entities.

A Controversial Path to Reform

The policy shift comes after a period of intense U.S. intervention. The abduction of former president Nicolas Maduro, who is now awaiting trial in a New York prison, resulted in dozens of deaths and drew accusations that the U.S. had violated Venezuelan sovereignty.

Trump administration officials have asserted that the U.S. will now determine who can purchase Venezuelan oil and under what terms. The proceeds from these sales are slated to be deposited into a bank account controlled by the United States. This approach has been criticized, though President Trump and his allies have previously claimed that Venezuelan oil should "belong" to the U.S.

This new era of privatization reverses decades of state control. Venezuela first nationalized its oil sector in the 1970s. In 2007, Maduro's predecessor, Hugo Chavez, further tightened government control by expropriating foreign-held assets, setting the stage for years of confrontation with international oil companies.

Canadian Prime Minister Mark Carney is championing a series of new trade agreements, signaling a strategic push to diversify Ottawa's global partnerships while asserting his country's sovereignty in the face of pressure from the United States.

During a meeting with provincial and territorial leaders on Thursday, Carney celebrated the successful negotiation of 12 new economic and security accords over the past six months. "Our country is more united, ambitious and determined than it has been in decades, and it's incumbent on all of us to seize this moment, build big things together," he stated.

This drive for diversification comes amid persistent friction with the administration of US President Donald Trump, who has previously antagonized Ottawa with rhetoric suggesting Canada could become a "51st state."

Forging New Economic Alliances

A central element of Canada's new strategy is a recent agreement with China aimed at lowering trade levies. The deal immediately drew a sharp rebuke from President Trump, who threatened to impose a 100 percent tariff on Canada, accusing the country of acting as a "drop-off port" for Chinese goods.

Carney has clarified that Ottawa is not pursuing a full free-trade agreement with Beijing. Instead, he highlighted the targeted benefits for Canada's agricultural sector. "Part of that agreement unlocks more than $7bn in export markets for Canadian farmers, ranchers, fish harvesters and workers across our country," Carney explained.

Looking ahead, the Prime Minister announced that his government would pursue deeper trading relationships with other major economic players, including:

• India

• The Association of Southeast Asian Nations (ASEAN)

• The South American trade bloc Mercosur

At the same time, Carney affirmed Ottawa's commitment to its primary economic partner, noting plans to "renew our most important economic and security relationship with the United States through the joint review of the Canada-United States-Mexico agreement later this year." The regional trade pact is set to expire in July.

Navigating a 'Great Power Rivalry'

Carney's push for new trade partners follows an attention-grabbing speech he delivered at the World Economic Forum in Davos, Switzerland, just eight days earlier. In his address, he argued that the "rules-based" international order was a fading fiction, giving way to an "era of great power rivalry" where might makes right.

"We knew the story of the international rules-based order was partially false, that the strongest would exempt themselves when convenient, that trade rules were enforced asymmetrically," Carney told the Davos audience. "We knew that international law applied with varying rigour depending on the identity of the accused or the victim."

His speech, widely interpreted as a rebuke of the Trump administration's aggressive tariff campaigns, concluded with a call for the world's "middle powers" to band together in these uncertain times.

Direct Friction with the Trump Administration

The geopolitical backdrop includes a series of aggressive moves by President Trump. His administration abducted Venezuelan leader Nicolas Maduro in what critics called a violation of international law and has made threatening statements toward Greenland, a self-governing Danish territory. These actions have caused unease within the NATO alliance.

Trump has also repeatedly targeted Canada, referring to the country as a "state" and its prime minister as a "governor." Following Carney's Davos speech, Trump withdrew an invitation for the Canadian leader to join his "Board of Peace."

Carney has stood by his remarks, publicly refuting claims by US Treasury Secretary Scott Bessent that he had "aggressively" walked back his position in a private call with Trump.

Carney Demands Respect for Canadian Sovereignty

The tensions came to a head on Thursday when Carney was asked about reports that US officials had met with separatists from Alberta. The Financial Times reported that State Department officials held three meetings with the Alberta Prosperity Project, a group advocating for a referendum on the oil-rich province's independence from Canada.

Carney's response was direct and unambiguous.

"We expect the US administration to respect Canadian sovereignty," he said. "I'm always clear in my conversations with President Trump to that effect."