We’re heading into a pretty interesting time for monetary policy. Jerome Powell’s term as Fed Chair is set to end on May 15, and Kevin Warsh, the incoming nominee, just went through his Senate confirmation hearing this week. He described the transition with an interesting set of words: Regime change.
What that ultimately means is still unclear, but the market isn’t expecting much immediate action. As of now, rate cuts aren’t being priced in for the June Federal Open Market Committee meeting, which could be Warsh’s first at the helm (see chart above). Even if he leans toward cutting rates, he’ll need consensus from the committee, and that won’t be easy with inflation still running hot and oil prices elevated. Cutting too soon risks damaging credibility, and that’s something markets tend to test quickly.
We talked about this dynamic back in December. Historically, markets often challenge new Fed chairs early on. First-year drawdowns are not unusual, and leadership transitions tend to bring added volatility. It’s likely this one won’t be any different.
So, the bottom line is that Warsh steps in at a tricky moment. Inflation remains sticky, geopolitical risks are still present, and the market will be watching closely. His early decisions will set the tone for where interest rates—and markets—head next.
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