"I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best. On top of everything else, he is 'central casting, and he will never let you down," Trump said in announcing his latest move to put his stamp on a Fed he persistently criticises for not cutting interest rates quickly enough.
US stock index futures pared declines after Trump's announced pick of Warsh, who markets perceive as someone who would support lower rates but who would stop well short of the more aggressive easing associated with some of the other potential nominees.
Trump announced the nomination, which requires confirmation by the US Senate, in a post on social media.
The Fed has long been seen as a stabilising force in global financial markets due in part to its perceived independence from politics.
Trump's escalating efforts to test that independence, including his Justice Department's decision earlier this month to open a criminal probe into Powell, have set the stage for a challenging Senate confirmation process for any successor.
Republican US Senator Thom Tillis has said he will not support any of Trump's Fed nominees amid the ongoing probe while fellow Republican Senator Lisa Murkowski has called for an investigation into the department's actions.
It has also opened the door to the possibility that Powell, who called the criminal probe a pretext to pressure the Fed into setting monetary policy as the president wishes, may opt to stay on at the Fed as a governor even after his term as central bank chief is up in a bid to safeguard it from political capture.
The nomination caps a months-long process as Warsh, White House economic advisor Kevin Hassett and other top contenders - including sitting Fed governor Christopher Waller and Wall Street insider Rick Rieder - appeared regularly on TV to showcase their thoughts about the economy.
Trump has also tried to force out Fed governor Lisa Cook in a battle now before the Supreme Court that, if successful, would mark the first time a president has ever fired a US central bank policymaker.
While Warsh is no White House insider, he has been a confidant of the president and a guest at the president's Florida estate, and looks poised to push many of Trump's priorities as a "shadow" Fed chief until Powell's tenure in the top job ends in mid-May.
A lawyer and distinguished visiting fellow in economics at Stanford University's Hoover Institution, Warsh has said he believes the president is right to press the central bank for steep rate cuts, and has criticised the Fed for underestimating the inflation-busting potential of productivity growth supercharged by artificial intelligence.
Warsh, 55, was nearly named to the job in Trump's first term before being passed over for Powell, and since then has kept a steady public profile through speeches and essays that have taken Powell and his colleagues to task for their management of the Fed's balance sheet, interest rates and other actions.
He now will be responsible for an institution he has said should scale back its footprint in the economy and change the way it manages monetary policy.
After studying law, Warsh worked for several years at Morgan Stanley where he dealt with mergers and acquisitions.
In 2002, he moved into politics, working under then president George W Bush, advising him on issues related to capital flows and securities.
Bush nominated Warsh as a governor of the Fed in 2006 and at just 35 years old, he became the youngest board member in the history of the Federal Reserve.
Former Fed chairman Ben Bernanke wrote in his memoirs that Warsh's young age attracted criticism but his political skills, market understanding and many contacts on Wall Street proved valuable.
Warsh is the son-in-law of Ronald Lauder, a close and long-time friend of Trump, who is the president of the World Jewish Congress.
with DPA and AP
