Federal Reserve Chairman Nominee Kevin Warsh Just Throwed Jerome Powell Under the Bus and Signaled a Major Change at the Central Bank

It’s the end of an era at America’s most important financial institution, the Federal Reserve. May 15 will mark the last day of Jerome Powell’s tenure as chairman of the Federal Reserve and potentially the beginning of Kevin Warsh’s tenure as head of the central bank.

It may also signal the start of greater volatility for the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC)and Nasdaq Composite (NASDAQ INDEX: ^IXIC).

Jerome Powell’s tenure as Federal Reserve chair is in its twilight

It had been known for some time that Powell would not serve a third four-year term.

Although Powell was appointed chairman of the Federal Reserve by President Donald Trump during his first term, Trump and Powell have been openly feuding since early 2025. Trump has opined that interest rates should be aggressively cut to 1% (or lower), while Powell has repeatedly proclaimed that economic data will guide policy decisions.

On January 30, the president nominated Kevin Warsh to succeed Powell. Warsh spent five years (February 26, 2006 – March 31, 2011) on the Federal Reserve Board of Governors and was a voting member of the Federal Open Market Committee (FOMC), the 12-person body, including the chairman of the Federal Reserve, that is responsible for setting the country’s monetary policy. He would bring firsthand experience to the position if confirmed by the Senate Banking Committee and the U.S. Senate.

But a Warsh-led Fed would entail changes, as evidenced by the Fed chair nominee’s testimony before the Senate Banking Committee.

Fed Chair Candidate Warsh Points Finger at Fed’s Inflated Balance Sheet

Last week, Warsh was questioned by the Senate Banking Committee about central bank independence, interest rates and the health of the U.S. economy, among other things.

One question in particular, from Sen. Raphael Warnock (D-GA), struck a chord with Warsh. In response to Warnock’s comments about working families struggling with high inflation, Warsh had this to say:

If the Fed were to execute a series of policy reforms, then I think the economy could be stronger… If the balance sheet had not been taken from the $800 billion level when I joined the Fed in 2006 to an order of magnitude higher… I think interest rates could be lower, inflation could be better, and the economy could be stronger.

Warsh has been an unabashed critic of the Federal Reserve’s growing balance sheet, made up primarily of long-term U.S. Treasuries and mortgage-backed securities, which rose from less than $900 billion in August 2008 to nearly $9 trillion in March 2022. During Powell’s tenure, this balance sheet effectively doubled, before settling at $6.7 trillion on April 22, 2026.

Warsh, by subtly throwing Powell under the bus, makes clear that his goal is to significantly reduce the central bank’s balance sheet. Regardless of whether this is the right decision, it may have enormous consequences for credit markets and Wall Street.

Since bond prices and yields are inversely related, the sale of trillions of dollars of bonds would be expected to weigh on prices and increase yields, thus raising borrowing costs. A historically expensive stock market counting on lower interest rates to fuel the expansion of AI data centers won’t be happy if borrowing costs rise.

A major narrative shift may be on the horizon, and the Dow Jones, S&P 500, and Nasdaq Composite could end up paying the price.

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Fed Chair Candidate Kevin Warsh Just Throwed Jerome Powell Under the Bus and Signaled a Major Change at the Central Bank originally published by The Motley Fool