Trump to Swear in Warsh as Fed Chair on Friday, Succeeding Powell
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
federal-reservekevin-warsh
Fazen Markets Editorial Desk
Collective editorial team · methodology
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President Donald Trump will swear in Kevin Warsh as Chairman of the U.S. Federal Reserve on Friday, May 22, 2026, succeeding Jerome Powell. Warsh’s nomination was confirmed by the Senate in a 52-48 party-line vote. The transition marks the first mid-term leadership change at the central bank in over a decade. Markets are sharply repricing expectations for future interest rate policy, with the two-year Treasury yield climbing 18 basis points on the announcement.
The last time a new Fed chair took office outside of a scheduled term was in 2018, when Jerome Powell succeeded Janet Yellen at the start of a presidential term. The current economic backdrop features persistent inflation, with the core PCE index running at 2.8% year-over-year, above the Fed's target. The 10-year Treasury yield sits at 4.42%, near its highest level in six months. The catalyst for this change was the political pressure for a more inflation-focused monetary policy following Powell's perceived dovish pivot after the 2024 election.
Warsh, a former Fed governor from 2006 to 2011, is known as a monetary policy hawk. His public critiques of the Fed's quantitative easing programs and its balance sheet expansion have defined his policy stance. The final confirmation vote followed months of partisan debate over the Fed's independence and inflation-fighting credibility. This leadership shift represents the most significant change to the Federal Open Market Committee's composition since the Trump administration's earlier appointments.
Market data reflects immediate repricing. Fed funds futures for December 2026 now imply a 78% probability of a 25-basis-point rate hike by year-end, up from a 32% chance one week ago. The ICE U.S. Dollar Index (DXY) surged 1.4% to 106.5 following the news. The S&P 500 Financials Sector (XLF) gained 2.1%, while the Technology Select Sector SPDR Fund (XLK) fell 1.8% on the session. The 2-year/10-year Treasury yield curve flattened by 7 basis points, a signal of concern over restrictive policy.
| Metric | Pre-Announcement (May 20) | Post-Announcement (May 22) | Change |
|---|---|---|---|
| 2-Year Treasury Yield | 4.35% | 4.53% | +18 bps |
| Fed Funds Futures (Dec '26) | 4.60% implied | 4.85% implied | +25 bps |
| US Dollar Index (DXY) | 105.0 | 106.5 | +1.4% |
This shift far exceeds the market moves seen after the last three FOMC meetings. The market now expects the Fed's balance sheet runoff to accelerate from its current $60 billion monthly cap for Treasuries.
Warsh’s leadership is expected to benefit financial institutions through higher net interest margins. This bodes well for major banks like JPMorgan Chase (JPM) and Goldman Sachs (GS), whose shares outperformed the broader market. Conversely, rate-sensitive growth stocks and the technology sector face headwinds. High-multiple stocks reliant on cheap capital, such as those in the ARK Innovation ETF (ARKK), are most vulnerable to de-rating. The S&P 500 utilities sector, a traditional bond proxy, fell 2.3%.
A key counter-argument is that overly aggressive tightening could prematurely choke off economic growth, which is already slowing. Real GDP growth for Q1 2026 was reported at 1.9%. Positioning data from major prime brokers shows a sharp increase in short positioning on long-duration Treasury ETFs like TLT. Hedge fund flows are rotating into value-oriented equity sectors like energy and industrials, which typically perform better in a rising rate environment. Bond market liquidity has deteriorated, with bid-ask spreads on 10-year Treasury futures widening by 25%.
The immediate focus is Warsh’s first public remarks, expected at a Brookings Institution event on June 5, 2026. Markets will scrutinize his language on the balance sheet and inflation targets. The next FOMC meeting on June 17-18 will be critical for confirming the policy path. The May Jobs Report on June 6 and CPI data on June 11 will provide the final economic inputs before that meeting.
Key levels to watch include the 10-year Treasury yield at 4.50%, a breach of which could signal a sustained bear steepening move. For the S&P 500, the 200-day moving average near 5,200 is now a crucial support level. If the dollar index (DXY) sustains a weekly close above 107, it could trigger further capital outflows from emerging markets.
Mortgage rates, which closely track the 10-year Treasury yield, will likely rise further. The average 30-year fixed mortgage rate increased from 6.8% to 7.1% in the week of the announcement. A sustained hawkish pivot could push average rates toward 7.5%, cooling housing market activity. This directly impacts homebuilder stocks and real estate investment trusts (REITs).
Warsh advocates for a rules-based policy framework with less discretion, contrasting with Powell's data-dependent approach. He has been a vocal critic of the Fed's post-2008 balance sheet growth, arguing it distorts asset prices. Historically, Warsh dissented in favor of tighter policy during his previous term. He is expected to prioritize inflation control over labor market maximization.
The last intra-term Fed chair appointment was G. William Miller in 1978, who served less than two years before being replaced by Paul Volcker. That period was marked by high inflation and market volatility. The Senate confirmed Volcker by an 84-6 vote, highlighting the current era's increased political polarization around monetary policy appointments.
The Federal Reserve is poised for its most hawkish pivot in 40 years, prioritizing inflation control over market stability.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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