A new Fed head ahead

Today is Jerome Powell’s last day as Fed chair. Fed governor Stephen Miran has also resigned on cue, clearing the seat Kevin Warsh needs to take the reins and lead the Fed into what is sure to be one helluva summer.

Warsh—who squeaked through the Senate vote by the slimmest margin in 50 years—has grand plans for a full-on “regime change” at the Fed, hoping to slash balance sheets, clamp down on communication, and usher in an AI-induced “golden age” for the US economy. Still, whether any of this pans out remains up for debate, and Warsh faces a whole lot of speed bumps along the way.

What will Warsh do?

President Trump, for one, will be loudly beating the drum for rate cuts all the way until November’s midterm elections. Warsh has insisted he’ll hold the line on Fed independence, but standing firm against a president who tried to fire his predecessor sounds way easier said than done.

It doesn’t help that inflation popped in April to a near three-year high of 3.8%. Of course, Treasury Secretary Scott Bessent insists all is well, adding that there could be one or two more “hot inflation numbers” before prices subside…but no one’s buying it. A recent survey shows 69% of Americans are unhappy with Trump’s handling of inflation, his worst marks on any economic issue.

A number of Fed officials also chimed in this week with worries that the economy is in rough shape. Chicago’s Fed President Austan Goolsbee warned that the AI boom could lead to stagflation, that dreaded combo of a slowing economy and rising prices, contradicting Warsh’s rosy expectations that AI productivity gains would have deflationary effects. Boston Fed President Susan Collins warned that the longer the Iran war drags on, the greater the odds are that the Fed might need to raise rates rather than lower them this year.

Right now, markets are expecting no rate cuts this year and around a 50% chance of a hike.

Warsh’s first test

Mark June 16–17 on your calendar: That’s the Federal Reserve’s next meeting, and Warsh’s first chance to show the world how he’s juggling Trump’s pressure for cuts, a divided Fed board, and a wobbly economy all at once.

If history is any indication of what’s ahead, he (and we) are in for a rocky start: Since 1930, FOMC chairs have seen a 5% drop in stocks during their first month in office and a 12% decline over their first three months.

We think it’s safe to say Warsh won’t be easing into his new gig.—JD