May 15 marks Jerome Powell’s final day as Fed chair, with Kevin Warsh expected to take over and push a sharper shift in policy than markets have priced in.
Warsh has signaled he wants to shrink the Fed’s $6.7 trillion balance sheet, down from a nearly $9 trillion peak, a move that would likely lift Treasury yields and tighten borrowing costs even without a rate hike.
He also wants to move away from the Fed’s formal 2% long-run inflation target, arguing price stability means inflation is low enough that “no one’s talking about it,” giving policymakers more discretion.
That flexibility could matter quickly because the Iran war and Strait of Hormuz disruption have driven U.S. regular gasoline to $4.54 a gallon and pushed broader inflation pressures higher.
A Warsh-led shift toward balance-sheet tightening or a more hawkish inflation stance could challenge richly valued U.S. stocks that have relied on lower rates to support AI spending and other growth bets.
Can Wall Street's bull market survive a hawkish Fed amid a historic global oil shock?
As the Fed tightens and Hormuz is closed, is the world economy facing a 1970s-style stagflation crisis?
Is abandoning the 2% inflation target a brilliant move for this new crisis or a reckless economic gamble?
Kevin Warsh Takes the Helm: How the 2026 Fed Chair Confirmation Signals a New Era of Monetary Policy and Political Tension
Overview
The report highlights a major shift at the Federal Reserve as Kevin Warsh is appointed Chair amid strong political pressure from President Trump, who has sought greater control over the central bank since returning to office. The Trump administration's efforts included attempts to remove Fed Governor Lisa D. Cook and a Department of Justice investigation into Jerome Powell, which was seen as a tactic to force policy changes. These actions set the stage for Warsh's leadership, which is expected to bring significant reforms to the Fed's operations, policy direction, and independence, marking a transformative period for the institution.