President Trump’s decision to nominate Kevin Warsh to chair the Federal Reserve was met with a burst of cross asset price action that looked, at first glance, like a clean repudiation of the “Sell America” trade. The market is trading Warsh as dollar higher, yield curve steeper, Nasdaq lower, and precious metals lower.
That reaction is understandable at the level of short-term positioning and event risk. But it is unlikely to interrupt the deeper dynamics behind the “Sell America” trade and the long-term reallocation from US assets that began after “Liberation Day” in April 2025. The “Sell America” trade is often misread as a claim that investors are exiting the United States wholesale. In fact, it is about hedging existing US exposure, diversifying into other assets and directing new marginal flows away from the US, rather than attempting to abandon US markets entirely. The forces driving that are intact.
The structurally high weight of US assets in global portfolios - now priced at decadal-high valuations (e.g. the dollar and US equities) necessitates some risk management from asset holders. Meanwhile, investors also need to price emerging concerns about central bank independence, the US fiscal trajectory, and the transformation of the US’s relationship with its allies. None of this particularly changes with the arrival of a credible nominee for Fed chairman. While a Warsh nomination on inflation resolves uncertainty and brings more credibility than, say, a Hasset one (and may offer some relief for President Trump’s long-running case of Irritable Powell Syndrome), ultimately this is just one variable in a multi-variable repricing of US assets.
To be sure, the appointment of a credible Fed chair in the mould of Scott Bessent at Treasury may ease near-term concerns about politicisation and reduce the risk of policy missteps ahead of the mid-term elections. But greater credibility does not eliminate institutional risk so much as change its form — from fears about independence to questions around tighter monetary-fiscal coordination in a period of large deficits and heavy Treasury issuance. Moreover, despite his reputation as a hawk, Warsh could be more dovish than markets expect throughout 2026.
First, he has said as much, arguing that the economy is currently going through a period of stronger growth without hotter inflation, akin to the gains seen in the 1980s and 1990s. He thinks a productivity miracle from AI is going to be a “significant disinflationary force”, pushing interest rates down sharply, giving relief to main street.
Second, Warsh’s relative independence and anti-inflation credibility could allow him to deliver at least two and plausibly three cuts this year. Markets will be more likely to give him the benefit of the doubt on rates, especially if he is able to make progress on his longtime goal of cleaning up the Fed balance sheet. In other words, in the Mobius strip world of central banking, a more hawkish stance on the balance sheet would allow a Warsh Fed to cut rates even more than a dovish alternative.
Third, Warsh is a more subtle and interesting thinker than his reputation as an inflation hawk would suggest. That hawkish reputation comes from speeches he gave during and after the GFC, when Warsh warned about upside risk to inflation from commodity price run-ups and called for an early end to Fed balance sheet expansion, respectively. While the worry about commodity prices during a banking crisis proved a misstep, his views on the Fed balance sheet have become less contentious in recent years.
Specifically, he has argued that post-crisis balance-sheet expansion and quantitative easing distorted prices, subsidised government borrowing, and ultimately contributed to the inflation dynamics that forced interest rates higher later. In his view, being a balance sheet hawk and an interest rate dove go together. However, despite being against QE at the zero lower bound, he is not against using crisis-QE to restore market functioning.
For markets, that combination of views is not a clear dollar positive. Lower front-end rates reduce carry support for the currency at the margin, particularly if inflation comes in lower than consensus—which we expect—and the easing cycle becomes more pronounced than anticipated. At the same time, opportunistic balance-sheet reduction would, if undertaken, likely push term premia up at the long end and place greater weight on private balance-sheet capacity to absorb Treasury supply. Moreover, Warsh’s desire for less transparency and continuous guidance at the Fed could amplify the increase in term premia. In a world in which the Treasury needs to finance large deficits and rollover a vast stock of debt, higher term premia is not a benign detail.
In that sense, the kneejerk unwind in crowded “Sell America” positioning as a result of Warsh’s nomination is unlikely to persist because the underlying story is intact. Global investors aren’t abandoning the US, they’re hedging an outsized, richly valued exposure and redirecting marginal flows as concerns about fiscal trajectory, policy volatility, and institutional risk persist. That is not changing any time soon.
