US stocks extended their decline in early Friday trading, as traders wagered that Kevin Warsh, President Donald Trump's pick for the next Federal Reserve Chair, would ultimately not support deep interest rate cuts and would be more concerned about inflation.
As of the time of writing, the S&P 500 index was down 0.2%, the Nasdaq 100 index had fallen 0.4%, and the Dow Jones Industrial Average was 0.1% lower. The market was giving back some of its gains accrued since January, though the S&P 500 remained on track for its best monthly performance since last October.
Strong earnings from tech giant Apple Inc. failed to lift the market on Friday. Furthermore, wholesale inflation rising faster than expected did little to improve market sentiment.
If Warsh's nomination is confirmed by the Senate, the former Federal Reserve Governor would take the helm at a time when many economists and investors perceive the central bank's independence to be under threat from the White House.
Although Warsh has echoed Trump's calls for lower interest rates and supported reforming the Fed, traders believe his ultimate inclination would be to prevent a surge in price pressures, given the concerns he expressed about rising inflation during his previous tenure at the central bank.
"The U.S. stock market is lower this morning on the news that Trump will nominate Warsh to be the next Fed Chair," stated Matt Maley, Chief Market Strategist at Miller Tabak + Co. He noted that the market decline was due to traders viewing Warsh as "seen as less supportive of deep rate cuts."
Neil Dutta, Head of Economic Research at Renaissance Macro Research, said the financial markets were reacting as expected, with stock index futures falling and long-term interest rates moving higher. Dutta added, "Warsh has been a policy hawk his entire life, and the recent dovish turn looks highly suspicious."
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