What will Warsh do?
A look at the equity market’s historical response to new Fed Chairs.
Published: 05/26/2026
After a bit of drama, we now have a new Chair of the Federal Reserve, Kevin Warsh. If history is any guide, Chair Warsh may find the beginning of his term presents something of a challenge. Going back to 1930, incoming Fed Chairs have had S&P 500 drawdowns in the first three months of their tenure and generally through the first six months, too. These include middling corrections as well as outright bear markets, such as during the Great Depression and the early chairmanship of Alan Greenspan (late 1980s).
Some of these market downturns were presumably coincidental, though, of course, new leadership at the central bank is more likely during periods of economic upheaval. Still, the consistency of bad returns is hard to ignore. The basic fact is that the equity market dislikes uncertainty, and few things cause uncertainty like new leadership at the Fed.
Chair Warsh is likely to bring change to the Fed. He has stated he is unhappy with the steady stream of opinion and commentary put forth by the central bank’s leadership. Warsh may also introduce a new preferred gauge of inflation. For some time now, the Fed has considered core personal consumption expenditures (PCE) — which exclude food and energy — to be the best measure of inflation. Warsh is a fan of “trimmed-mean PCE,” a reading put forth by the Dallas Fed that tosses out extreme outliers (of whatever kind, not specifically food and energy). Trimmed-mean PCE is running lower than core PCE, which might permit dovishness to emerge, despite possible energy shock-related inflation concerns.
Our outlook:
A dip at the beginning of Warsh’s tenure would prove little on its own. Indeed, it could even be a further spur to lower rates if conditions permitted. The real questions will be: where does Chair Warsh want to take the Fed and how does his vision fit into (or conflict with) market conditions? Lower rates could bring a risk-on acceleration scenario and further bolster the AI boom. Higher rates increase the risk of a hard landing. Keeping rates steady could promote a growth stabilization scenario but might run the risk of prolonging inflation.
- Prolonged inflation — inflation remains sticky, energy prices stay elevated, and policy easing is delayed, supporting defensive positioning.
- Growth stabilization — inflation moderates gradually, growth remains positive, and markets broaden beyond megacaps, supporting balanced portfolios.
- Risk-on re-acceleration — geopolitical tensions ease quickly, inflation expectations fall, and markets price ongoing rate cuts, potentially supporting risk assets.
- Hard landing — growth deteriorates and financial conditions tighten, creating a risk-off environment, supporting liquidity.
Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.
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