Kevin Warsh will replace Powell as head of the Fed: what will change
2 FEB, 2026
By Joanna Piwko from RankiaPro Europe
Donald Trump has announced that Kevin Warsh will replace Jerome Powell as head of the Federal Reserve. This handover, for investors, is not just symbolic: it could mean a change in the way the Fed will manage rates, liquidity and balance.
Who is Kevin Warsh: experience, credibility and “hawkish” orientation
Warsh is not a new name: he has already been part of the Fed board and has gone through a crucial moment in American financial history. Kevin Thozet, member of Carmignac's Investment Committee, highlights the institutional profile of the candidate: "Warsh boasts respectable credentials". In particular, Thozet recalls his role during the crisis: "as governor of the Fed during the global financial crisis, he played a key role" and adds that his ability to relate with politics has been recognized at the highest levels: "he was praised by Ben Bernanke for maintaining a constructive dialogue between the Federal Reserve and Congress".
But beyond the credentials, his approach matters most. Thozet (Carmignac) emphasizes that Warsh has shown a restrictive posture on inflation and gives an example that the markets know well: "during his term (2006-2011), Warsh maintained a 'hawkish' position on inflation until the end of 2009", despite an extremely weak macro framework.
Also Richard Flax, Chief Investment Officer of Moneyfarm, reinforces this reading by recalling his skepticism towards unconventional policies: "during the global financial crisis, in fact, he had expressed strong doubts about the widespread use of quantitative easing", because he feared "inflationary consequences".
Finally, there is the political issue. Jack Janasiewicz (Natixis IM Solutions) explains that many investors see him close to Trump: "investors consider Warsh a faithful follower of Trump", because "he recently expressed opinions on monetary policy that coincide with those of Trump". However, Janasiewicz sets an important limit: "the chosen successor has been a monetary policy hawk for most of his career".
What will change with Warsh at the Fed: short-term cuts, smaller balance and steeper curve
The heart of the matter is the mix of policies: Warsh might be less willing to support the markets with the budget and more inclined to let the "price of money" work on the short stretch of the curve.
Rates: possible cuts, but not aggressive easing
According to Thozet (Carmignac), Warsh could push for a normalization of rates in 2026: But the goal would not be a generalized support to the markets, but to the real economy.
In other words, the strategy would be targeted: "ease the short stretch of the curve, not the budget". A fundamental distinction because it changes the way monetary policy is transmitted to credit, consumption and investments.
Moneyfarm, however, is more cautious about expectations of a strong and rapid cut. Flax warns: "it is not at all taken for granted that Warsh will support aggressive monetary easing".
Fed Budget: aggressive reduction and end of the “automatic” support to liquidity
This is probably where the real discontinuity lies. Janasiewicz (Natixis IM Solutions) points out that among the changes proposed by Warsh a precise point emerges: "an aggressive reduction in the size of the Fed's budget".
Thozet (Carmignac) explains the philosophy behind it: Warsh argues that "quantitative easing and an excessively large budget favor Wall Street at the expense of Main Street", inflating asset prices without really improving credit conditions for families and SMEs. And he also clarifies his interpretive scheme: "QE compresses long-term yields, but leaves short-term financing conditions essentially unchanged".
Yield curve: steeper and more “market-driven”
If the Fed cuts the short but reduces the budget, the curve can change shape. Thozet (Carmignac) summarizes it this way: "the implication would be a steeper US yield curve".
The mechanism is clear: "short-term rates would be anchored by policy rate cuts", while in the long term the market dynamics could prevail: "long-term yields could grow to levels determined by the market", in a context marked by "persistent inflationary pressures, high fiscal deficits and a still significant Treasury supply".
Impact on stocks and risky assets: liquidity risk
The greatest risk concerns overall liquidity. Thozet (Carmignac) warns that "the reduction of the balance sheet in a phase of large fiscal deficits implies a greater net issuance that the markets must absorb", and all this happens "in a context of already fragile liquidity".
It's not a technical detail: Thozet cites concrete signs of stress: "signs of tension in the repo markets and recurring funding difficulties". And concludes that this combination could weigh on risk: "a less supportive budget policy could weigh on stocks and other risky assets".
Dollar: possible strengthening
Finally, if the Fed turns out to be less accommodating than expected, the exchange rate can also react. Flax (Moneyfarm) points out that some operators read his guide as a scenario for higher rates: "a scenario associated with slightly higher policy rates and a potentially stronger dollar".
The real “moment of truth”: Senate and independence of the Fed
The political-institutional unknown remains. Flax (Moneyfarm) recalls that the relationship between the Fed and the US administration has been difficult: "in the last twelve months, the relationship between the Fed and the US administration has been complex", also due to "political pressures in favor of lower rates".
Hence the fear of an erosion of autonomy: "some investors fear a gradual erosion of this autonomy". For this reason, Flax concludes, the decisive step will be the formal confirmation: "the Senate's confirmation will be a key moment to clarify its positions".
