Dow Jones and the crypto market drop after Trump picks Warsh for Fed

The Dow Jones Index and the crypto market slipped as investors reacted to Donald Trump’s decision on Kevin Warsh to be the next Federal Reserve Chairman.

The Dow Jones, S&P 500, and Nasdaq 100 indices dropped by over 40 basis points, while the crypto market crash gained steam.

Bitcoin (BTC) moved below $82,000 for the first time in weeks. Ethereum (ETH) dropped to $2,700, while the market capitalization of all coins dropped to $2.8 trillion.

The same crash happened in the previous metals industry, with gold and silver falling by over 6%. Gold moved below $5,000, while silver fell below $100.

Stocks, cryptocurrencies, and precious metals dropped because the financial market was expecting the president to nominate Wall Street-friendly Rick Rieder to become the Fed Chair.  His odds had surged since his interview last week.

Warsh the hawk

Kevin Warsh is widely seen as a more conventional Federal Reserve Chair based on his past history as a Fed governor. He was one of the top hawks in his first term as a Fed governor. For example, he voted against quantitative easing in 2011 when the unemployment rate was at over 9%.

Most recently, Kevin Warsh opposed Federal Reserve’s interest rate cuts and the quantitative easing policies during the pandemic. He also blasted the Fed for the modest rate cuts in 2024.

Therefore, there is a likelihood that Warsh will not embrace a more dovish tone as Trump has demanded. At the same time, there is a risk that he will be at loggerheads with the administration and the financial market.

If he cuts interest rates too fast, he will be widely seen as a Trump puppet who has abandoned his principles. On the other hand, if he leaves rates steady for long, he will be blasted by the president as he has done with Powell.

Most importantly, even if he maintains a highly dovish tone, Warsh will need to convince other members of the Federal Open Market Committee to cut interest rates. 

The Dow Jones Index also dropped after the latest earnings by top companies like Apple and Microsoft. Microsoft’s stock tumbled by over 10% on Thursday as its cloud computing business slowed. While Apple’s results were strong, its stock dropped as it warned of the ongoing memory shortage.