What will change with Kevin Warsh as the new Fed Chair?

This Friday, May 22, Kevin Warsh will officially take office as the new chair of the Federal Reserve, and the timing is far from ideal.

1. Inflation is accelerating. The Consumer Price Index rose at an annual rate of 3.8%, the highest level since May 2023, while the headline Producer Price Index jumped 6.0% year-over-year, well above the consensus forecast of 4.8%, amid high oil prices.
2. The U.S. economy is losing momentum. GDP grew at just a 1.4% annualized pace in Q4 2025, far below Reuters’ expectation of 3.0%. Although real GDP growth accelerated to 2.0% in Q1, it still missed the forecast of 2.2%.

In the labor market, although unemployment remains relatively low at 4.3%, job openings unexpectedly increased by 178,000 in March (versus forecasts of only 62,000 in April), and weekly jobless claims are hovering near their lowest levels since 1969. Despite these headline numbers, actual hiring has slowed dramatically.

The fact that both the S&P 500 and the Nasdaq are at all-time highs is also not a good sign, as it means the risk of a correction is high, and if it does occur, Warsh will almost certainly be blamed. By the way, since 1930, the S&P 500 has fallen by an average of 12% during the first three months after a new Fed chair takes office.

As for hopes that Warsh will dramatically shift Fed policy, decisions at the regulator are made collectively through voting. Even if the new chair pushes for monetary easing, he would likely have support from only a couple of members, potentially Waller and Bowman. Given the inflation data, most of the committee will likely favor keeping policy unchanged.

Markets aren’t expecting a miracle either. According to the CME FedWatch Tool, the probability of a rate cut before the end of the year is 0%, while the chances of a rate hike stand near 40%.

In summary, don’t expect Jerome Powell’s departure alone to change the trajectory of U.S. monetary policy. Ultimately, everything will depend on developments in the Middle East. If the Strait of Hormuz is reopened through diplomacy, markets may receive a boost. Otherwise, the risk of a correction will grow.