Kevin Warsh takes the Fed: what to expect, what Powell did

Kevin Warsh was confirmed as Fed chair by the Senate on May 13 2026, 54–45, and sworn in on May 22, succeeding Jerome Powell, whose second term as chair ended on May 15. This post was first published during that handover and has been update

Kevin Warsh was confirmed as Fed chair by the Senate on May 13 2026, 54–45, and sworn in on May 22, succeeding Jerome Powell, whose second term as chair ended on May 15. This post was first published during that handover and has been updated with what his Fed has done since.

The short answer: Warsh came in with a hawkish record, and so far his Fed has acted like it: rates were held at 3.50–3.75% at his first meeting in June, raised a quarter point to 3.75–4.00% in September, and held there on October 28 2026, with two officials dissenting in favour of another hike. The open question is less the direction of policy than whether the Fed's independence holds under a White House that wants lower rates. For traders, the useful skill is reading what the market already prices for each meeting rather than guessing the chair's mind.

Who Kevin Warsh actually is

Stanford undergrad, Harvard Law. Joined Morgan Stanley in 1996 as a junior associate in mergers and acquisitions, rose to vice president and executive director inside the M&A division. Left Wall Street in 2002 to join the Bush administration as special assistant to the president for economic policy and executive secretary of the National Economic Council. Represented the White House in the Sarbanes-Oxley discussions after the early-2000s accounting-scandal cycle.

In 2006, at age 35, he was nominated to the Federal Reserve Board of Governors — the youngest governor at the time of appointment. He served as one of Ben Bernanke's lieutenants through the 2008 financial crisis, the Lehman weekend, the AIG decision, the Bear Stearns rescue. Left the Fed in 2011 to take a Distinguished Visiting Fellow seat at the Hoover Institution at Stanford. Spent the next fifteen years writing on monetary policy, financial regulation, and the limits of quantitative easing before President Trump announced him as his nominee for chair on January 30 2026.

Three things tie the career together. The Wall Street side (he knows how the financial sector behaves under stress). The White House side (he knows how the executive talks to the central bank). The Fed-governor side (he has sat in the room during a once-in-a-generation crisis). Few people have all three.

What Warsh did before — and why it matters

The Morgan Stanley M&A background matters because corporate-finance fluency is not standard at the Fed. Most governors come from academic economics or banking supervision. Warsh comes from the deals side. He is comfortable with capital structure, with restructuring math, with what happens when a balance sheet stops being a going concern. That sensibility shaped his crisis-response work in 2008 and shows up consistently in his Hoover writing on bank capital and resolution.

The Bush NEC role matters because it is the executive-branch perspective. Warsh sat at the table where the White House decides which fights to pick with the Fed, the Treasury, and the regulators. He knows the pressure points. He has friends and adversaries from that era on both sides of the aisle.

The Bernanke Fed role matters most. Warsh was inside the building when the financial system seized in September 2008. He was part of the team that designed the emergency-liquidity facilities, that pushed for TARP coordination with Treasury, that decided which institutions got bailed out and which did not. He resigned in 2011 partly over disagreements with the trajectory of quantitative easing — he wanted the Fed to start tightening earlier than Bernanke ultimately did.

That resignation is the relevant signal. Warsh has been on the record, in writing, against the long-tail QE policies that defined the post-2008 Fed. He arrives in 2026 with that view substantially intact.

What to expect — hawkish bias, the independence test

The clearest line from Warsh's Hoover writing is that monetary-policy credibility is the central bank's most important and most fragile asset. The implication is a Fed that errs on the side of restraint rather than pre-emptive stimulus, that holds rates higher for longer to drive inflation durably to target before easing, that is suspicious of the "transitory" framing the Powell Fed used in 2021.

The complication is political. Trump nominated Warsh after a multi-year pressure campaign against Powell that included calls for resignation, a Justice Department investigation into Powell that held up the confirmation for months, and a sustained public attack on the central bank's rate decisions. The Senate confirmation vote on May 13 was 54–45, mostly along party lines. The administration's stated preference is for materially lower rates than the data would suggest.

The honest read is that Warsh's prior writing has argued aggressively for Fed independence as a principle. Whether that holds when the executive is the one who appointed him, and is publicly pressuring him on rate decisions, is the test that defines his chairship. Not the policy stance itself.

What Warsh's Fed has done so far

Meeting	Decision	Target range after
April 2026 (Powell's last as chair)	Hold	3.50–3.75%
June 17 2026 (Warsh's first)	Hold, 12–0	3.50–3.75%
September 16 2026	+0.25 point, 12–0	3.75–4.00%
October 28 2026	Hold, 10–2 (two dissents favoured a hike)	3.75–4.00%

Sources: the Federal Reserve's September and October FOMC statements. The September hike was the first increase since 2023. That is the hawkish record his outside writing pointed to, delivered despite public pressure from the White House for cuts.

Jerome Powell's tenure, in five chapters

The departing chair's eight years compressed five distinct phases.

The COVID response. March 2020 onwards. The Fed cut rates to zero, restarted quantitative easing at a scale dwarfing 2008, opened a half-dozen emergency-lending facilities, and coordinated with the Treasury on a fiscal package worth roughly a quarter of US GDP. The balance sheet roughly doubled from around four trillion to around nine trillion dollars. The recession itself lasted two months — the shortest on record — and the US recovered faster than any other G10 economy. This is the part of Powell's record that historians will treat most kindly.

The transitory mistake. Through 2021 the Powell Fed described accelerating inflation as transitory and held policy accommodative longer than the data justified. CPI peaked above nine percent in June 2022. The Fed then raised rates from near-zero to a federal funds target range of 4.25–4.5 percent by year-end 2022 and continued tightening into 2023, peaking above five percent. The aggressive catch-up worked, but the late start cost real wages and credibility.

The SVB wake-up call. March 2023. Silicon Valley Bank failed; Signature Bank followed; First Republic followed shortly after. The episode revealed regional-bank vulnerability the Powell Fed's supervisory framework had underweighted. New emergency-lending arrangements followed, plus a regulatory reset that is still unfolding.

Independence under fire. From 2024 onwards, Trump's pressure on the Fed escalated — public attacks, calls for Powell's resignation, and a Justice Department investigation into Powell that held up Warsh's confirmation. Powell did not bend on rate decisions, did not resign, did not soften his public stance. The Atlantic Council and others have argued this is the part of his record that will most define his historical legacy.

The unprecedented stay-on-board move. Powell's chair term ended May 15 2026, and the Board named him chair pro tempore until Warsh was sworn in. His governor term, which expires in January 2028, runs independently, and he has chosen to remain on the Board of Governors rather than resign the governor seat. Most outgoing chairs leave the central bank entirely. The decision is widely read as a signal about institutional continuity during the transition, not as a comment on the new chair.

A chair's record outside the Fed tells you the direction. The rate decisions tell you whether the direction survives contact with the committee and the White House.

— Tradoki

Powell before the Fed

The thread most retail content misses is that Powell came from the law-and-finance side of the industry, not the academic-economist side.

He clerked for a federal appeals court judge in 1979 and practised law at Davis Polk & Wardwell and Werbel & McMillen through the 1980s. Joined the Treasury Department in 1990 as assistant secretary for financial institutions and rose to undersecretary for domestic finance — handled the Salomon Brothers Treasury-auction scandal, including the negotiations that placed Warren Buffett as chairman during the workout.

Left government in 1993 for Bankers Trust as a managing director; left after the bank's reputational fallout from a series of complex-derivative losses. Spent eight years at the Carlyle Group as a partner, founding and leading the Industrial Group inside the US Buyout Fund. Founded his own boutique private-equity firm, Severn Capital Partners, in 2005. Took a visiting-scholar seat at the Bipartisan Policy Center from 2010 to 2012 before President Obama nominated him to the Fed Board of Governors in 2012.

He was the first Fed chair in a generation without a doctorate in economics. That shaped his communication style — plainer English, fewer technical hedges, more willingness to admit when the Fed was wrong. The transitory mistake notwithstanding, his press conferences were the clearest a Fed chair had given since at least Volcker.

The Fed, in plain English

A quick reset for anyone who has been reading "the Fed" headlines without internalising what the institution actually does.

The Federal Reserve is the central bank of the United States, created by the Federal Reserve Act of 1913. Its two-part legal objective — the dual mandate — is maximum employment and stable prices. It pursues those objectives through three main levers. First, setting the federal funds rate, which is the cost of overnight unsecured borrowing between US banks and the anchor for the rest of the US interest-rate complex. Second, expanding or shrinking its balance sheet by buying or selling Treasury bonds and mortgage-backed securities — quantitative easing in the expansion direction, quantitative tightening in the shrinking direction. Third, forward guidance — communicating to markets what it expects to do next.

The rate-setting body is the Federal Open Market Committee, the FOMC. Twelve voting members: the seven governors of the Federal Reserve Board, the president of the New York Fed (a permanent voter), and four of the eleven other regional Fed presidents on a rotating basis. The chair runs the meeting. The committee meets eight times a year on a scheduled calendar; the meetings produce a statement, an updated Summary of Economic Projections (including the dot plot), and a press conference.

The dot plot — the chart showing each participant's projection of where the funds rate will be at year-end — is one of the most-watched pieces of Fed communication. The macro-reading framework covers how to read it without overinterpreting it. For the dollar, for the yield curve, for the cross-asset reaction map, the dot plot is the signal that travels furthest.

Reading the market's rate odds, worked through

You do not need to guess what Warsh will do. Fed funds futures price it, and the arithmetic behind tools like CME FedWatch is simple enough to do by hand. The figures below are a hypothetical illustration, not a market quote.

1. Current policy rate. With the range at 3.75–4.00%, take the midpoint: 3.875%.
2. Futures-implied rate. A fed funds futures contract is quoted as 100 minus the expected average rate. Suppose the contract for the month after the next meeting trades at 96.05. Implied rate = 100 − 96.05 = 3.95%.
3. Probability of a hike. A 25-basis-point hike would move the midpoint to 4.125%. The market is pricing 3.95 − 3.875 = 0.075 points of the possible 0.25, so 0.075 / 0.25 = 30% odds of a hike, 70% of a hold.
4. Sanity checks. A price of 96.125 would imply 3.875%, a 0% hike probability; 95.95 would imply 4.05%, or 70%.

The real calculation also adjusts for the meeting falling partway through a month, which is why published figures differ slightly from this shortcut. The point for a trader is that the "surprise" in a Fed decision is the gap between the outcome and these odds, not the outcome itself. A hike priced at 90% moves markets far less than a hike priced at 30%. Tradoki's Central Banks & Interest Rates in Forex and Key Economic Indicators for Traders modules walk through the same reasoning.

What was on Warsh's desk on day one

The work list, not the prediction.

Inflation that is not at target. Inflation was running above the Fed's two percent target when Warsh took over, and its re-acceleration through 2026 is what the September hike responded to.

A balance sheet still in the post-COVID hangover. Powell ran an active quantitative-tightening programme to shrink the Fed's assets from the nine-trillion peak back toward something defensible. The programme is partway through. Warsh inherits the question of whether to continue, accelerate, or pause it.

An AI-driven capex layer that is doing a non-trivial share of US growth. We covered this in the AI circular revenue piece. The Fed has to decide how to respond if that layer corrects sharply — cut into the correction to support employment, or hold to the price-stability target. The two legs of the dual mandate point in opposite directions if it does.

Bank-regulation unfinished business. The post-SVB regulatory framework is still being finalised. Warsh has been publicly sceptical of post-2008 macroprudential expansion. Whether he uses the chair's bully pulpit to roll back any of it is a real question.

The independence test. Trump has signalled continuing pressure on rate decisions, signalled comfort with personnel pressure on Fed officials, and continues to communicate his preference for lower rates publicly. The dollar reserve status, the Treasury yield curve, and the global market's confidence in US monetary infrastructure depend not on whether Warsh agrees with the executive but on whether he is seen to make policy independently of the executive. This is the part of the chairship that does not appear on the FOMC agenda but defines its meaning.

For the broader regulatory and macro horizon, the future-of-retail piece covers what to expect from financial regulation over the next several years; the Fed-chair transition is one chapter of that longer story, not the whole book.

None of this is a prediction about where rates go. Five months in, the rate decisions have followed the hawkish line his prior writing argued for. Whether that holds as political pressure continues will be visible meeting by meeting, and the futures odds above are the cleanest way to watch it.

● FAQ

Who is Kevin Warsh?

The 17th chair of the US Federal Reserve, confirmed by the Senate 54–45 on May 13 2026 and sworn in on May 22 2026. Career: Stanford undergrad, Harvard Law, Morgan Stanley M&A (1996), Bush White House National Economic Council (2002), Federal Reserve Board of Governors under Ben Bernanke (2006–2011), Hoover Institution Distinguished Visiting Fellow (2011 onwards). He was the youngest Fed governor at the time of his 2006 appointment.

Why did Powell leave the Fed as chair?

Jerome Powell's second four-year term as chair ended on May 15 2026. The Board named him chair pro tempore until Kevin Warsh was sworn in on May 22. Unusually for a departing chair, Powell is remaining on the Federal Reserve Board of Governors for a period — his governor term runs separately from his chair term.

Will Warsh cut interest rates?

His public track record from outside the Fed since 2011 has been consistently hawkish — sceptical of prolonged quantitative easing, sceptical of the 2021 'transitory' inflation call, and explicit that monetary-policy credibility is expensive to rebuild once lost. So far his Fed has not cut: it held at 3.50–3.75% at his first meeting in June, raised the range to 3.75–4.00% in September, and held there in October 2026. Whether that posture survives continued political pressure for lower rates is the open question.

What is the Fed's dual mandate?

Two legal objectives written into the Federal Reserve Act: maximum employment and stable prices. The Federal Open Market Committee — the FOMC, the rate-setting body — has to balance them. When inflation runs high, the price-stability leg dominates; when unemployment runs high, the employment leg dominates. Most Fed-chair tenures are defined by which leg the chair leans into during their term.

What happens to Powell now that he is no longer chair?

Powell continues to sit on the Federal Reserve Board of Governors. His chair seat is a four-year appointment; his governor seat is a fourteen-year appointment that runs independently. The decision to remain on the board is unusual — most outgoing chairs leave the central bank entirely — and is widely read as a signal about institutional continuity during the transition rather than a comment on the new chair.