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April 22,  2026

Regime Change at the Fed

As the world focuses on the prospects of regime change in the Middle East, another sort of regime change may be underway in Washington.

Despite the usual grilling by a few hostile senators at yesterday’s hearing, it now appears quite likely that Kevin Warsh will be confirmed and take over next month as the new Chair of the Federal Reserve.

The President’s political opponents sought to paint Warsh as Trump’s rate-cutting lapdog. In our view, Warsh effectively countered with a thoughtful monetary policy framework grounded on rational optimism about the growth potential of the U.S. economy.

The President believes that real economic growth in the U. S. and real take-home pay will accelerate. I share the President's confidence in our country and its people. America's economic growth potential is rising as we sit here today. - Kevin Warsh (4/21/2026)

The conflict in Iran has played out in frustrating fits and starts, but from a market perspective, the crisis appears largely over. Major stock indexes are once again pressing all-time highs.

Through the end of trading today, the S&P 500 has advanced 12.6% from its lowest level on March 30. The index is now up 4.7% on a year to date basis.

Iran is starting to recede into the rearview mirror, based on confidence that energy flows will resume one way or another. As investors spend less time worrying about Iran and oil, focus is returning to the core macro drivers of the market.

Against this backdrop, we see the eventual confirmation of Kevin Warsh as a positive catalyst, as the market recognizes the new Fed Chair’s growth orientation and credibility on inflation.

The sharp disagreements between Trump and current Fed Chair Jerome Powell were at moments destabilizing. Market sentiment therefore also stands to benefit from a much less contentious and likely more constructive relationship between the White House and the Fed.

Rising productivity

Trump has made it abundantly clear on many occasions that he believes that interest rates are currently too high. It stands to reason that he would not nominate a new Chair who held views that directly contradicted his own.

In Warsh, he found a future leader of the Fed who clearly understands the importance of central bank independence and credibility—yet also shares Trump’s growth-oriented economic vision.

At the heart of this vision is the idea that technological progress raises the ceiling for American economic expansion. In the hearing, Warsh described AI as a force that is ushering in “the most disruptive moment in modern economic history in the U. S. and the world.”

Warsh believes the U.S. economy’s potential growth rate is increasing. Technological change can offset inflationary pressures over time by improving productivity.

Not everyone is onboard with this positive vision of an AI-driven economy. Democrats in Congress like Bernie Sanders and Alexandria Ocasio-Cortez have expressed outright hostility to AI, calling for bans on new data centers.

Anti-AI sentiment has some traction on the right as well.

During the hearing, Senator John Kennedy warned the audience that  “a lot of the stuff about artificial intelligence making us more productive is a bunch of hype by people who want to sell stock in an IPO.”

Despite the skeptics, Trump’s economic policy remains very much oriented around establishing technological leadership in AI and providing the underlying infrastructure necessary to deliver it.

Just this week, Trump announced steps to advance his January 2025 Executive Order declaring a national emergency to improve electric grid infrastructure and “associated upstream supply chains.”

Trump recognizes the urgent need for the economy to generate more electrical power as current capacity limitations represent a bottleneck on AI data center growth.

In Warsh, Trump has a Fed Chair who shares his view of AI as a positive structural force and catalyst for productivity growth. While recognizing uncertainties around timing and magnitude, Warsh seems inclined to give the economy the liquidity it needs to invest in AI-driven growth.

A focus on crypto, too

Some are calling Warsh the first pro-crypto Fed Chair.

Through the confirmation process, it was revealed that Warsh has substantial crypto-related investments, many of which are held through a venture capital fund in which he has been an investor.

Senator Cynthia Loomis is among the most vocal proponents of Bitcoin and crypto in Congress. She asked Warsh if “digital assets should be incorporated into our financial industry so Americans have new investment opportunities and consumer protection.”

Warsh replied affirmatively that “digital assets are already part of the fabric of our financial services industry in the United States.”

Whereas Powell has been more neutral on the subject of crypto, Warsh appears to bring a recognition that the future of our financial system increasingly involves the adoption of blockchain technology.

His own personal investments, along with prior public statements, speak to both his familiarity and confidence in digital assets. He has also had private sector engagements with crypto investment firms like Bitwise, a prominent crypto asset manager, and Electric Capital, a fintech venture capital firm.

It is not the Fed’s job to promote crypto adoption, but we expect a more crypto-friendly orientation under Warsh’s leadership, especially as mainstream financial institutions increasingly deploy blockchain-based systems.

A new inflation framework

Warsh will also bring a different viewpoint on inflation versus his predecessor. He sees inflation less as a trade-off with growth and more as a function of the overall money supply.

During the hearing, he was harshly critical of the Fed’s role in the inflation crisis experienced under Biden.

I think is the biggest economic policy error in forty or fifty years happened just a few years ago and we're still living with the with the remnants of it. - Kevin Warsh (4/21/2026)

Warsh explicitly called for “a regime change in the conduct of policy” and “a different, new inflation framework.”

Warsh is keen to distinguish between the Fed’s use of interest rates and its balance sheet as tools for controlling inflation. He argued that the balance sheet “disproportionately helps those with financial assets,” while interest rate policy “hits the entire economy.”

This is a direct critique of the post-2008 and post-2020 reliance on Quantitative Easing (QE), when the Fed engaged in multi-trillion dollar bond purchases.

When growth has slowed and recession risk rises, the Fed has been quick to stimulate the economy by engaging in QE and boosting asset prices. This directly benefits owners of almost all financial and real assets, disproportionately benefiting the wealthy.

But when inflation spiked after the pandemic, the Fed chose to lift short-term interest rates sharply, which affected all consumers and hit the working class hard.

His preference for interest rate-based policy suggests a Fed that will be less inclined to use large-scale asset purchases as a primary tool and more focused on traditional monetary policy mechanisms.

Is he independent?

Because Trump has been so critical of Powell and outspoken with his opinions on interest rates, any candidate he selected would be vulnerable to accusations of being compromised.

As his commitment to political neutrality was repeatedly challenged, Warsh offered an interesting take on the question of the Fed’s independence, connecting it to its excessive use of QE.

Warsh explained to the Senate that “in the ordinary course, the central bank, an independent body, should not be adopting a set of policies that have that kind of distributional consequence.”

In other words, the Fed has compromised its own perception of independence by favoring certain groups over others.

Warsh also believes the Fed became more politicized in recent years as it has drifted away from its core responsibilities of price stability and promoting employment. He criticized its evolution into “an institution that is tempted to play a larger role in the economy and society.”

Under Biden, the Fed began incorporating factors like equity and climate change. We interpret his statements as a commentary on this drift into ideological agendas.

The Fed must stay in its lane. I'm committed to ensuring that the conduct of monetary policy remains strictly independent, equally committed to work with the administration and Congress on non-monetary matters that are part of the Fed's remit. And I commit myself to accountability. - Kevin Warsh (4/21/2026)

Back to basics

Warsh’s testimony outlines a shift toward a more traditional, rules-based approach to monetary policy.

His emphasis on accountability for past inflation, reduced reliance on balance sheet tools, and skepticism of forward guidance suggests a Federal Reserve that will be less vulnerable to the policy errors of years past.

While sticking to fundamentals, the Fed may also become more sophisticated in many ways. Warsh brings relative youth, significant private sector investment experience, and a level of tech sector exposure that is rare among Fed officials.

In the eyes of Trump’s many enemies, Warsh will always be regarded with suspicion, no matter what he says.

But as the Fed advances into a new era under Warsh’s leadership, we are optimistic that his approach could lead to fewer policy mistakes and create a favorable environment for sustained long-term economic growth.

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