The economist stated that Warsh was always his first choice to lead the central bank and that he expects the Senate to confirm him.
- Brushing aside the initial decline in the bond markets post the nomination of Warsh, Siegel said that the former Fed Governor is a “decisive upgrade” to outgoing Fed Chair, Jerome Powell.
- Ultimately, Siegel believes that a Fed that is tough on inflation is positive for bonds and equities. He also brushed aside investor concerns that Warsh is “overly” hawkish.
- He added that Warsh will want to continue to reduce the Fed’s ownership of mortgage-backed securities.
Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business, on Tuesday said that the nomination of Kevin Warsh as the Federal Reserve Chair bodes well for both equities and bonds.
The economist stated that Warsh was always his first choice to lead the central bank and that he expects the Senate to confirm him.
“His qualifications are superb, and most importantly, he brings genuine independent minded thoughts back to the Fed—something that was too often lacking in recent years,” the economist said.
‘Decisive’ Upgrade To Powell
Brushing aside the initial decline in the bond markets post the nomination of Warsh, Siegel said that the former Fed Governor is a “decisive upgrade” to outgoing Fed Chair, Jerome Powell.
Ultimately, Siegel believes that a Fed that is tough on inflation is positive for bonds and equities. He also brushed aside investor concerns that Warsh is “overly” hawkish.
“Warsh’s skepticism toward later rounds of quantitative easing (QE) were well-founded. His support for a gradual balance-sheet reduction does not entail dumping securities too quickly on the market,” Siegel said.
He added that Warsh will want to continue to reduce the Fed’s ownership of mortgage-backed securities.
Constructive Outlook Ahead
Siegel noted that his outlook for the equity markets ahead is constructive. He said that two major uncertainties, namely the change in guard at the Fed and the government shutdown risk, have now diminished.
However, as for the sharp rotation in equities, the economist highlighted the recent surge in Meta Platforms Inc. (META) shares and the decline in Microsoft Corp. (MSFT). Meta shares have surged nearly 9% over the past month, while Microsoft shares have declined over 10%.
“My central view remains that this is shaping up to be the year of the AI user, not the AI producer. Capital spending will continue, but returns will increasingly accrue to firms that deploy AI to boost productivity rather than those merely selling the picks and shovels,” he said.
Siegel added that President Donald Trump’s tariff policies remain a “wildcard,” but they are not a dominant risk. “Warsh at the helm is a net positive for both bonds and equities, and I remain optimistic about the medium-term outlook,” he said.
Warsh’s Prior Experience
Warsh, a former Fed governor, is seen as a policy hawk with close ties to Wall Street. Apart from his experience at the central bank, the 55-year-old has prior experience as the Fed’s emissary to the emerging and advanced economies in Asia.
He was also a member of Morgan Stanley’s mergers and acquisitions team, having served as the firm’s Vice President and Executive Director.
Warsh is currently a partner of Stanley Druckenmiller at Duquesne Family Office LLC, and he also serves on the board of directors of United Parcel Service Inc. (UPS) and Coupang Inc. (CPNG).
Meanwhile, U.S. equities were mixed in Tuesday’s pre-market trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up by 0.5%, the Invesco QQQ Trust ETF (QQQ) rose 0.54%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) declined 0.03%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bearish’ territory.
The iShares 20+ Year Treasury Bond ETF (TLT) was down by 0.03% at the time of writing, while the iShares 7-10 Year Treasury Bond ETF (IEF) fell 0.04%.
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