Overview
- The White House has sent Kevin Warsh’s nomination to the Senate, but Republicans angered by a DOJ investigation into Jerome Powell present obstacles to confirmation.
- Warsh argues structural forces like artificial intelligence justify lower interest rates and favors reducing the Federal Reserve’s $6.6 trillion balance sheet.
- Many policymakers signal patience on further cuts, citing still-elevated inflation and a stabilizing labor market, with some officials even leaving the door open to hikes if prices stay firm.
- Analysts warn that materially shrinking the balance sheet risks short‑term funding stress reminiscent of 2019 and would likely proceed slowly despite support for Warsh from Treasury Secretary Scott Bessent.
- Investors weigh Warsh’s hawkish history against a perceived pro‑growth pivot as oil price spikes linked to Middle East tensions add to volatility across Treasuries and global equities.