New Fed Chair Warsh could be locked in as soon as Tuesday
At a Glance
The desk views the imminent confirmation of Kevin Warsh as the new Federal Reserve Chair as a pivotal moment for U.S. monetary policy, potentially leading to a more hawkish stance. Per the full note from Eamonn Sheridan, Warsh's confirmation is expected as early as Tuesday, with a vote on his chair position likely on Wednesday, just before Jerome Powell's departure. This transition could signal a shift in policy direction, particularly as inflationary pressures remain elevated. The market is closely monitoring how this leadership change will influence the Fed's approach to interest rates and asset purchases.
Full Analysis
What the desk is arguing
The desk posits that Kevin Warsh's confirmation as Fed Chair could usher in a more aggressive monetary policy approach, especially given the current inflationary environment. Per the full note from Eamonn Sheridan, Warsh's confirmation is anticipated shortly, which may prompt the Fed to recalibrate its strategy regarding interest rates and quantitative easing.
Supporting this view, the market has been pricing in an increased likelihood of rate hikes, with recent inflation data indicating persistent upward pressure. The Consumer Price Index (CPI) has shown year-over-year increases around 5.4%, underscoring the urgency for the Fed to act decisively.
The alternative read would be that the market has already priced in a significant shift in policy, and any delay in aggressive actions could lead to a recalibration of expectations, particularly if inflation shows signs of easing.
Where it sits in our coverage
Our consensus target for the USD/EUR pair is 1.075, with a range of 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which anticipates a stronger dollar under Warsh's leadership, while bofa remains cautious, predicting a weaker dollar scenario. The desk's call sits at the upper bound of the spread, indicating a bullish outlook on the dollar.
How other firms see it
Firms like jpmorgan and citi are aligned in their expectation of a stronger dollar, anticipating that Warsh's confirmation will lead to tighter monetary policy. Conversely, bofa and goldman sachs express skepticism, suggesting that the Fed may not act as aggressively as the market expects.
Watch the USD/JPY trajectory for potential spillover effects from the Fed's policy adjustments, as well as the implications for the EUR/USD pair, which could react strongly to any shifts in Fed guidance.
What the calendar says
With the Senate vote on Warsh's confirmation scheduled for Tuesday and the subsequent vote for his chair position on Wednesday, the market will be closely watching these events as potential catalysts for volatility in FX markets.
From the original
Kevin Warsh, Trump's nominee for Federal Reserve chair, cleared a key Senate procedural vote on Monday, moving him toward confirmation as early as Tuesday for a 14-year term as Fed governor. A separate vote on his four-year term as Fed chair is expected as soon as Wednesday, ahea
Related speeches
4 itemsKevin Warsh is confirmed to be a Federal Governor of the Federal Reserve Board
The recent confirmation of Kevin Warsh as a Federal Reserve Governor marks a pivotal moment for U.S. monetary policy. Per the full note from investinglive-cb, his nomination as the next Fed chair is imminent, with a Senate vote expected shortly. This transition could signal a shift in the Fed's approach to interest rates, particularly as current chair Jerome Powell's term extends until January 2028, pending investigations. The market is closely watching these developments, especially given the potential implications for the USD and broader FX landscape.
Kevin Warsh confirmed as the Fed Chair
The desk interprets Kevin Warsh's confirmation as Fed Chair as a pivotal moment for monetary policy direction, particularly with market yields already testing the new leadership. Per the full note [source], the current 30-year bond yield is at 5.045%, indicating heightened market scrutiny on Warsh's approach to inflation and interest rates. With Powell's term concluding on May 15, the transition period will likely see volatility as traders assess Warsh's stance against the backdrop of a divided Senate vote, where all but one Democrat opposed his confirmation. This context sets the stage for potential shifts in market dynamics as Warsh's policies unfold.
Trump: I expect Kevin Warsh to go down as one of the very best Fed Chairman.
A changing Federal Reserve
The desk anticipates a cautious Federal Reserve under Kevin Warsh's potential leadership, emphasizing a hold on interest rates amidst persistent inflation concerns. Per the full note [source], Warsh's recent testimony suggests a reluctance to commit to rate cuts, aligning with the Fed's current stance of maintaining rates steady. This perspective is reinforced by the labor market's resilience and inflation metrics that remain above target. Given the lack of high-impact events in the coming month, traders should prepare for potential volatility as the Fed navigates these complexities.
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