Donald Trump is expected to nominate the former Federal Reserve governor Kevin Warsh as its next chair amid an extraordinary attempt by the president to tighten his grip on the US central bank and flout its longstanding independence.

Trump told reporters on Thursday that he planned to announce his choice for chair of the Federal Reserve on Friday morning, hinting that “a lot of people think that this is somebody that could have been there a few years ago”.

That fuelled speculation that he had chosen Warsh, who was considered for the Fed chair in 2017. There was a surge of bets on Warsh to be nominated on the Polymarket predictions site, where his chances rose to 94% on Friday.

The Financial Times reported on Friday that Trump was preparing to nominate Warsh, citing three people familiar with the matter.

Being the chair of the Fed is one of the most powerful roles in the US government, with enormous influence over the world’s largest economy.

If confirmed by the Senate, Warsh will replace Jerome Powell, who Trump first appointed in 2018, but later infuriated the US president by defying his repeated calls for lower interest rates.

Warsh, a New Yorker who was special assistant for economic policy from 2002 to 2006, served as Fed governor between 2006 and 2011, a period that included the response to the global financial crisis, and was its representative to the G20 group of countries.

He is now a lecturer at the Stanford Graduate School of Business and has roles at the courier UPS, the Korean e-commerce company Coupang and the Duquesne Family Office, the investment firm of the billionaire Stanley Druckenmiller.

Warsh is married to Jane Lauder, the granddaughter of the cosmetics magnate Estée Lauder and daughter of Ronald Lauder, the billionaire businessman who has interests in Greenland and encouraged Trump to attempt to acquire the territory.

Warsh has been a long-time critic of the ultra-loose monetary policy pursued by the Fed since the financial crisis, including the central bank’s expanded balance sheet. He had previously been seen as a monetary policy hawk, but appears to have aligned himself with the White House’s push for lower borrowing costs.

In December, Trump said of Warsh: “He thinks you have to lower interest rates.”

The dollar strengthened after reports of the expected nomination. The US dollar index, which measures its strength against a basket of six currencies, rose 0.4%. Gold fell 4% to $5,168 an ounce.

Warsh would be “a relatively safe choice”, according to Stephen Brown, the deputy chief North America economist at Capital Economics.

He said Warsh “would arguably be one of the better outcomes for investors compared with the other contenders that had been in the running. Warsh’s long-running hawkish views should help to counteract concerns that he might morph into a full-blown Trump stooge.

“That said, his firm conviction that both AI and the Trump administration’s regulatory push will help to hold down inflation, as well as his long-standing view that the Fed should operate with a much smaller balance sheet, present the risk of some upward pressure on long-term bond yields.”

The long-awaited announcement comes at a fraught time for the Fed. Notably, Warsh is part of a shortlist of candidates who are universally aligned on Trump’s belief that rates should be much lower than where they stand.

Lower rates can spur investment and economic activity, at the risk of causing inflation. Fed officials such as Powell have taken a cautious approach to setting borrowing costs, but Trump has claimed that not lowering rates has cost the US dearly.

With Powell at its helm, the Fed has been defiant of Trump – refusing to set rates according to his whims and, as a result, becoming a target of the president’s fury.

But the Fed has forced Trump to grapple with the boundaries of his executive power at a time when it seems to be limitless. Economists say that an independent central bank is essential in keeping an economy stable, enabling it to disregard short-term political factors and focus on the long term.

Powell’s term as Fed chair is due to end in May. While Trump has considered firing him and tried to dismiss another Fed official last year, the the central bank seems primed to get special protection from the supreme court because of its role in the US economy. Wall Street is also protective of the Fed’s independence: when rumours circulated last year that Trump was trying to fire Powell, stocks dropped significantly.

But this protection has only further incensed the president. Earlier in January, Trump’s Department of Justice launched a criminal investigation into Powell over renovations at the Fed’s headquarters.

Trump has claimed that Powell’s handling of the renovations, which have gone over budget, amounts to fraud. Powell, who has denied any wrongdoing, argued the justice department’s pursuit was “a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president”.

The president’s attacks have so far failed to persuade the Fed to dramatically lower rates. However, the attacks have also damaged the trust business leaders, and even some Republican lawmakers, have in Trump to protect the Fed’s independence, and thus protect the US economy.

It is unclear how much support Trump will have in getting Warsh’s nomination through the Senate because of this distrust. Thom Tillis, a member of the Senate banking committee and one of the handful of Republican lawmakers who have spoken out, said he would block Trump’s Fed nominations because of the investigation.

Though Powell’s term as chair is ending, his 14-year tenure on the Fed board that sets interest rates will end in 2028. Powell has yet to announce whether he will stay on the board after his term as chair ends.