- This Friday Kevin Warsh will officially become the head of the US Federal Reserve, and Donald Trump will personally take the oath of office.
- Most likely, he will not move to a sharp reduction in rates, but will reduce liquidity.
- This is a negative factor for risky assets and the crypto market.
On Friday, May 22, Kevin Warsh will officially take up the post The swearing-in ceremony for the US Federal Reserve Chairman will be conducted by President Donald Trump at the White House.
Federal Reserve chairs are typically sworn in at the agency’s headquarters. The last chair to be sworn in at the White House was Alan Greenspan in 1987. Trump’s presence clearly signals a closer connection between the administration and the Fed’s future activities.
Warsh replaces Jerome Powell at a challenging time for the central bank: inflation is above the 2% target, bond yields are rising, and markets lowered expectations in relation to lower interest rates (CME FedWatch data).
The big question now, however, is whether Warsh can resume the cycle of monetary easing that Trump has long and publicly demanded.
Interestingly, Warsh has repeatedly argued that the Fed has relied too heavily on quantitative easing over the past decade. He believes that massive bond purchases have inflated asset prices, widened the wealth gap, and distorted financial markets without benefiting the economy.
Instead of resuming quantitative easing, Warsh advocates a combination of balance sheet reduction and interest rate cuts. His approach relies on quantitative tightening rather than money printing.
This means that the Fed will continue to reduce its balance sheet, and rate cuts will only be possible if inflation declines sufficiently. The goal of this strategy is to maintain pressure on excess inflation. liquiditywhile reducing borrowing costs for businesses and consumers.
However, Warsh is unlikely to be able to oversee the entire Fed. Recent FOMC meetings confirmed divisions within the central bank, as three regional Fed officials voted against easing policy guidance at the April meeting.
CME FedWatch data
Analysts believe the Fed should maintain the option to raise rates in the future, especially if inflation continues to rise. Any contrary action by Warsh would raise suspicions of political bias on the part of the Trump administration.
Refusing to ease policy would create a conflict with the White House, which has openly demanded rate cuts for months. Warsh will likely choose a compromise.
Markets increasingly expect the Fed to keep rates steady while tightening liquidity due to further reduction of the balance sheet.
If inflation stabilizes and Warsh’s Fed moves to lower interest rates without resuming quantitative easing, crypto markets and Bitcoin can restore the upward momentum.
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