New Fed Chair Warsh could be locked in as soon as Tuesday
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.
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.
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, ahead of Jerome Powell's departure on Friday. This article was written by Eamonn Sheridan at investinglive.com.
Sources & References
How we cover this story