Trump's Fed Pick Shakes Markets

President Trump nominated Kevin Warsh to lead the Federal Reserve, the government agency that controls interest rates. Trump has consistently pushed for lower rates, which make it cheaper for people and businesses to borrow money. But of the candidates Trump was considering, Warsh may have been the least likely to simply do what the president wants.

Warsh, 55, previously served at the Fed from 2006 to 2011. He quit because he disagreed with the Fed’s strategy of pumping trillions of dollars into the financial system to boost the economy, a practice known as quantitative easing. His central argument is that the Fed has made it too easy for Congress to spend money it doesn’t have. In a 2025 speech, he argued that lawmakers “found it considerably easier appropriating money knowing that government’s financing costs would be subsidized by the central bank.” He wants the Fed to stop cushioning the consequences of government overspending and return to a narrow focus on keeping prices stable.

Markets reacted with force. Gold suffered its worst single-day drop since the early 1980s, falling more than 12% from record highs. Silver plunged roughly 30%. Bitcoin tumbled approximately 12%. All three assets tend to rise when investors expect easy money and a weaker dollar, conditions that make hard assets and alternatives to traditional currency more attractive. A Fed chair committed to tighter policy and a stronger dollar reverses that logic, and markets moved accordingly. Given Warsh’s public criticism of government overspending, the Senate confirmation process should be interesting.

The headline numbers tell a story of resilience. The Atlanta Federal Reserve Bank’s GDPNow model estimates fourth quarter 2025 growth at 4.2%, unemployment holds at 4.4%, and weekly jobless claims remain historically low at 209,000.¹ If you stopped there, you’d think the economy was humming. But the details underneath those numbers deserve a closer look.

Start with the consumer. Spending grew 0.5% in both October and November, but disposable income grew just 0.1% and 0.3% over those same months. That gap has to come from somewhere. Credit card balances hit a record $1.233 trillion in the third quarter of 2025, and the personal savings rate has fallen to 3.5%, well below its 20-year average of 5.9%.² Consumers aren’t pulling back yet, but they’re increasingly funding their spending through debt and shrinking savings rather than growing paychecks. That’s a pattern that works until it doesn’t. Meanwhile, the labor market is cooling quietly. The economy added just 49,000 jobs per month in 2025, a sharp drop from 168,000 in 2024. Employers aren’t laying people off in large numbers, but they’re not hiring either.

Inflation adds another layer of difficulty. Consumer prices are up about 2.4% from a year ago, but the broader measures the Federal Reserve watches most closely, including core Personal Consumption Expenditures (the Federal Reserve’s preferred inflation gauge), are running hotter at 2.8%.³ That’s close enough to feel progress but far enough from the 2% target to keep the Federal Reserve cautious. Futures markets are currently pricing in at most two rate cuts through the end of 2027. Borrowing costs aren’t coming down anytime soon.

Then there’s the question hanging over corporate America’s biggest bet. Hundreds of billions of dollars are flowing into artificial intelligence infrastructure, but profitability remains unproven. PJM Interconnection, the nation’s largest regional power grid operator serving 67 million people, just lowered its electricity demand forecast after finding that many planned data center projects lack firm construction or service commitments.⁴ The buildout is real, but so is the uncertainty about whether demand will match the investment.

The economy isn’t breaking. But the sources of growth are narrowing, and some of what looks like strength is being funded by debt and declining savings. For investors and planners, the takeaway is straightforward: don’t mistake headline resilience for broad-based strength, and plan accordingly for an environment where borrowing costs stay elevated and consumer momentum gradually fades.