With Donald Trump's formal nomination of Kevin Warsh as the next Federal Reserve Chair, markets reacted sharply. Spot gold recorded its largest single-day drop since 1983, quickly falling through the $5,000 mark, with a maximum decline exceeding 10%. Silver saw an even steeper drop, at one point falling over 30%. Bitcoin fell from near the $100,000 level, breaking through multiple psychological barriers within 48 hours to test the $70,000 range, a pullback of nearly 30%. The Nasdaq 100 Index also showed a significant weekly decline, pressured by expectations of a higher discount rate and balance sheet reduction.
The anticipated change in Fed leadership and the introduction of Warsh's proposed "rate cuts + quantitative tightening" measures seem to signal a fundamental shift for the Fed from being a "lender of last resort" to a "gatekeeper of liquidity." However, what truly determines the direction of global assets is not what Warsh "wants to do," but what he can do and to what extent he can achieve it.
This report analyzes Warsh's policy preferences and career background, systematically examines the political environment he faces and his policy stances, projects the policy rhythm before and after the midterm elections, and ultimately discusses the repricing logic for various global assets and the transmission of impacts to the A-share market. It seeks to understand the true impact of the Fed's policy shift on capital markets during the Warsh era.
Warsh's approach combines quantitative tightening to manage inflation and interest rate cuts to manage financing costs. Compared to other candidates, Trump's appointment of Warsh as the new Fed Chair significantly revised market expectations for ultra-loose monetary policy. Markets adjusted noticeably after his nomination. This is because the market habitually labels Fed officials using a "hawkish/dovish" dichotomy, but a more accurate characterization is that Warsh is a "disciplinarian"—more concerned with the boundaries of the central bank, the long-term consequences of financial conditions, and the institutional costs of balance sheet expansion, with a natural aversion to the normalization of unconventional tools like QE.
Focusing on Warsh's policy views: First, he dislikes quantitative easing (QE), but not because he opposes easing itself. Warsh believes QE distorts asset prices, inflates bubbles, and exacerbates wealth inequality between wage earners and asset holders. For instance, he does not deny the necessity of QE1 during the 2008 financial crisis, viewing it as a "crisis response innovation," but explicitly opposes QE2 and subsequent operations—the issue is not using the tool during a crisis, but treating a crisis tool as a readily available routine option. This implies that the threshold for initiating QE during ordinary economic fluctuations will be significantly higher in the future.
Second, Warsh does not deny the need for rate cuts but emphasizes that "cutting rates does not equal flooding the system with liquidity." Recent statements suggest he views the current interest rate as potentially 50-100 basis points above the neutral rate, which he estimates is around 3%, close to former Chair Powell's estimate but higher than some other candidates' views of 2.5% or lower. This relatively restrained expectation for rate cuts反而 enhances the credibility of his policy—rate cuts would be based on a technical assessment of the neutral rate, not simple capitulation to political pressure.
The key, however, is his主张 to create space for rate cuts through balance sheet reduction (QT). He attributes the root of inflation not to an overheated labor market but to fiscal deficit expansion combined with monetary oversupply from Fed QE. Therefore, the correct way to control inflation is not to suppress private sector demand through rate hikes but to restrict the fiscal aspect of money creation through QT. This is the theoretical basis for the market's feared combination of "rate cuts + QT."
Third, Warsh is viewed by the market as a reformer primarily due to his core主张 of contracting the Fed's power boundaries. He repeatedly questions: "Has the Fed done too many things that should not fall under the central bank's purview?" This awareness of boundaries意味着 the threshold for Fed intervention during financial market turbulence will be higher.
Over the past fifteen years, the Fed has evolved from a mere monetary policy setter to the market's buyer of last resort, a shadow ally of fiscal policy, and the ultimate backstop for banks. Warsh seeks to reverse the boundaries of this ultimate backstop role.
This may be the biggest difference in decision-making出发点 between him and Powell. Powell's characteristic is flexible reliance on employment and inflation data for expectations management and risk management, with his decision-making core being "how to avoid systemic shocks." This flexibility allowed him to quickly adjust policy—pivoting rapidly after the Q4 2018 market crash, launching an unprecedented rescue package in March 2020, and executing a single 50-basis-point cut in September 2024 based on employment data.
This flexibility made Powell one of the few Fed Chairs in history to come close to achieving a "soft landing," but it also made the Fed's policy framework increasingly reliant on immediate reactions to short-term data.
Warsh's出发点 is entirely different: he is more concerned with "whether this is something the central bank should be doing." In his view, the central bank's responsibility is to adjust monetary conditions through price-based tools (interest rates), not to directly intervene in asset markets or assume fiscal financing functions through quantity-based tools (QE/asset purchases).
Specifically, Warsh criticizes the Fed's current "ample reserves regime," advocating a return to the pre-crisis approach—fine-tuning reserve supply through open market operations to control the federal funds rate, rather than maintaining massive reserves and controlling the interest rate floor by adjusting the IORB (Interest on Reserve Balances). The core purpose of this framework shift is to return monetary policy to "price adjustment" rather than "quantity backstopping."
The market generally believes that if Warsh focuses excessively on liquidity, it will lead to the following impacts:
First, volatility in money markets will increase. Under Warsh's framework, interbank liquidity would no longer be "available on demand" but would require precise adjustment through the Fed's open market operations. This means the volatility of short-term funding rates (like SOFR, repo rates) would increase, and financial institutions would need to manage intraday liquidity more proactively, unable to rely on the central bank's unlimited supply.
Second, the "Fed suppression effect" on long-end interest rates would weaken. During the QE era, the Fed directly suppressed term premiums by purchasing long-term Treasuries, keeping 10-year Treasury yields persistently below levels suggested by economic fundamentals.一旦 the Fed withdraws from this role, term premiums will return to a normality determined by market supply and demand. Given the heavy reliance on short-term debt (T-bills and T-notes) for government financing in recent years, supply pressure on the long end is not negligible.
Finally, the market's expectation of a "Fed backstop" would be broken. Over the past fifteen years, whenever markets experienced sharp volatility, traders' first reaction was "will the Fed step in?" This expectation itself suppressed volatility. If Warsh explicitly raises the intervention threshold, the market must relearn to digest volatility on its own. This would directly manifest as a rise in the baseline for volatility indicators like the VIX and increased turbulence for high-valuation, high-leverage assets.
Therefore, Warsh advocates reducing forward guidance and the frequency of statements from Fed officials, believing that excessive reliance on guidance based on short-term data predictions constitutes inappropriate market intervention. In the Powell era, whenever the dot plot indicated future rate cut potential, risk assets reacted提前, because the market believed Fed actions would "arrive as scheduled." But in the Warsh era, the Fed's communication style will change how "rate cut expectations" affect the market.
To understand why Warsh holds these policy preferences, one must examine his career: from Wall Street to the White House, to his tenure at the Fed, combined with his family background, and how these shaped his decision-making logic.
Overall, Warsh's career can be summarized as using his Wall Street credentials and fluency in the language of financial markets to enter the White House, then leveraging his White House policy coordination experience to join the Fed.
Before entering the public sector, Warsh held executive positions in M&A and capital markets at Morgan Stanley. The value of this Wall Street experience perhaps lies in the mindset it instilled: within the investment banking system, the most sensitive metrics are not GDP growth or CPI data, but spreads, liquidity, and financing conditions.
A deeper influence is that Wall Street experience gave Warsh a natural preference for using "market signals" rather than "statistical data" to assess economic conditions. This way of thinking differs from Powell's approach of "adjusting the steering wheel based on the dashboard of economic data." Warsh is more like a driver who judges the path by feeling the bumps in the road—this also laid the groundwork for his later主张 of being "trend-dependent rather than data-dependent."
His Wall Street tenure likely increased Warsh's sensitivity to funding costs, credit spreads, liquidity, and risk appetite. These skills were恰好 needed by the White House National Economic Council (NEC) during the early 2000s when discussions on financial regulation and capital market policies intensified. From 2002 to 2005, Warsh served as Special Assistant to the President for Economic Policy in the George W. Bush administration, responsible for coordination between the Treasury, regulatory agencies, and the market.
Warsh's nomination to the Federal Reserve Board in 2006 also fit the personnel logic of the time: with the financial system becoming more complex, shadow banking expanding, and housing finance risks accumulating, the Fed needed individuals in core decision-making roles who understood market microstructures and were familiar with government coordination. Warsh's appointment was likely due to his ability to explain "policy tool effects" in the language of "financial conditions and market feedback."
Warsh left the Fed early in 2011, moving to policy research at institutions like the Hoover Institution at Stanford. His early departure, viewed from his subsequent path, resembles an "exit after task completion." This也可能 shaped his long-standing emphasis on central bank boundaries and the institutional costs of unconventional tools, forming a clearer framework for institutional criticism. It also made the market more likely to view him as a candidate capable of "maintaining communication channels" between government demands and Wall Street stability.
Additionally, his marriage embedded him within established American capital and political social networks: his spouse is a member of the Estée Lauder family, and his father-in-law, Ronald Lauder, holds significant influence in American political and business circles and has been frequently mentioned in media reports as a long-time acquaintance of Trump. This background does not directly determine his policy stance but aligns with Trump's preference for an "elite family" persona in his appointments.
Overall, Warsh's career path from Wall Street to the White House to the Fed likely made him sensitive to financial conditions, his White House experience gave him an understanding of political constraints and policy coordination, his Fed tenure shaped his preference for the long-term effectiveness of policy tools, and his family and network structure increased his probability of appointment at key junctures.
Returning to the political economy sphere, even if the market clearly understands Warsh's policy stances, can he achieve his intended reforms given the current political landscape?
To understand why Trump ultimately chose Warsh over other candidates, one must interpret Trump's current political situation. The White House's requirements for the new Chair can be broken down into two layers: subjective desires and objective constraints.
First, the subjective desire is for loyalty, willingness to cut rates, and being "controllable." From the Trump administration's perspective, with the precedent of Powell's "slow pace of rate cuts," Trump fears a repeat. But he must also face the reality of whether a new candidate can pass Senate confirmation, gain credibility within the Fed, and quell Wall Street's concerns about Fed independence.
Comparing the candidates horizontally, one candidate scored highest on "loyalty" but was less satisfactory on the other three criteria (the market was particularly worried about a significant impact on Fed independence). Another candidate scored highest on "objective constraints" but loyalty was questionable, making him容易被排除. Warsh was the candidate with no obvious weaknesses—having sufficient communication channels to reassure the White House (through his father-in-law's private connections and other mentor relationships) and sufficient professional credibility to reassure the market (Wall Street background, Fed experience, crisis response experience).
His "hawkish credibility"恰恰 became Warsh's biggest competitive advantage. In an environment where inflation concerns persist and the market is sensitive to independence, only someone perceived as hawkish taking the helm would the market dare to believe that future rate cuts are based on monetary discipline rather than political compromise.
This logic of "hawkish credibility backing dovish policies" is not rare historically—Paul Volcker could control inflation in the 1980s because the market believed his determination to "stabilize prices even at the cost of recession." Alan Greenspan enjoyed the "Goldilocks economy" partly due to the "inflation hawk" image he built early in his career.
Warsh's situation is similar: when he supports rate cuts, the market is more inclined to believe it is based on a rational judgment of the neutral rate (he believes the current rate is 50-100bp above a neutral rate of around 3%), not迫于 political pressure.
More critically, his combination of "rate cuts + QT," while seemingly contradictory, has a certain theoretical coherence: Warsh attributes inflation to the combined effect of unrestrained fiscal expansion and quantitative easing, rather than overheated demand.
Within this framework, the focus of monetary policy should be constraining the fiscal financing function, not suppressing private sector vitality. This logic provides an "academic包装" for the rate cuts the White House wants while offering a solution to the market's concerns about discipline.
Balancing "political controllability" and "market independence," Warsh's professional background and "hawkish" label are sufficient to make the market believe he is not a White House mouthpiece; internally, the White House believes he will not be "uncontrollable" like Powell.
Because, in an environment where inflation concerns are not fully extinguished and the market is highly sensitive to independence, a Chair perceived as overly political and "dovish" would first push up risk premiums and long-term rates, ultimately making housing, corporate financing, and government borrowing more expensive. Conversely, a person with a "monetary discipline" label pushing for rate cuts makes the market more willing to believe the basis is a judgment on the neutral rate and financial conditions, not pure political compromise.
A final, often overlooked factor is the pressure from the 2026 midterm elections. Historical data shows the ruling party generally has a high probability of losing midterm elections, with only个别 exceptions in recent decades.
This means Trump's primary political task this year is布局 around "voters' cost of living"—prices, employment, and housing financing costs directly affect votes. A candidate advocating aggressive rate cuts might align with short-term desires but could trigger market concerns about inflation resurgence or compromised independence, causing long-term rates to rise反而. For example, when Trump frequently criticized Powell in the second half of 2024, the 10-year Treasury yield rose instead of falling.
Warsh's value lies in his ability to provide some assurance before the midterm elections: he won't be as激进 as to cause panic like one candidate, nor will he refuse any easing like an extreme hawk. His "incrementalist"特质—maintaining a steady pace before the election and discussing reforms afterward—恰好 matches the White House's political timetable. This is the logic of realpolitik for Trump under midterm election pressure: first win the midterms, then have the capital for subsequent reforms.
Therefore, it is worth pondering: will Warsh, as a reformer, push the "QT + rate cuts" policy as forcefully as the market expects?
Warsh's policies will also face constraints from the political environment, market realities, and internal Fed checks and balances.
From a liquidity perspective, conditions may not currently be suitable for QT. By December 2025, overnight reverse repo (ON RRP) flows were gradually drying up, and money market liquidity in 2026 was already showing signs of tightness. As indicated, since the start of 2026, ON RRP dropped to near zero, the SOFR-ON RRP spread rose to a historical high of 32bp, and usage of the Standing Repo Facility (SRF) kept climbing. This may indicate that interbank liquidity has already turned "slightly tight."
Precisely because of this, the Fed initiated the Reserve Management Purchases (RMP) program in December last year to improve liquidity. Forcing QT would likely repeat the repo market crisis of September 2019 (when overnight repo rates soared to 10%, forcing the Fed to urgently restart repos and expand the balance sheet).
Furthermore, QT would also push up long-term rates: when the Fed reduces bond purchases, term premiums return to being determined by market supply and demand. With the U.S. Treasury needing to roll over approximately $9 trillion in debt annually, relying heavily on short-term debt, the supply pressure on the long end is enormous. Therefore, Warsh's most realistic choice is to maintain the current RMP pace and only persuade the FOMC to reduce purchase volumes after liquidity明显 improves, provided no repo market crisis occurs.
Simultaneously, the Fed's internal decision-making mechanism will likely constrain Warsh's policies. The Fed makes collective decisions involving 19 officials (12 voting members), not by Chair fiat. Decisions on QE vs. QT, or adjusting the reserve framework, are collective outcomes. When the FOMC announced the restart of RMP in December last year, the vote had zero dissents—all officials unanimously supported the technical expansion of the balance sheet.
This means that even if Warsh wants to reverse RMP, he must persuade other officials. The distribution of hawks and doves within the FOMC will not change drastically due to a Chair change: Regional Fed Presidents are appointed by regional boards and are not directly controlled by the White House, and Board Governors have staggered terms and cannot be easily removed. This mechanism is designed precisely to prevent the Fed from being politicized for short-term gains.
If Warsh wants to push for a major shift, he must first build consensus within the FOMC. This also explains why he is most likely to first change the "communication style"—reducing the dot plot frequency, limiting official statements—which only requires FOMC consensus and does not involve激进 policy tool adjustments.
Most值得深思 is the need to "deliver" before the midterm elections. Trump's choice of Warsh likely implies some默契 between them. At least before the November 2026 midterm elections, Warsh faces White House political pressure and needs to一定程度 "deliver"—avoiding major actions that cause panic before the election and配合 rate cut demands where data允许.
Because QT is a contractionary policy in the short term; rising long-term rates and tightening financing conditions would directly impact housing and investment, contradicting Trump's布局 to "reduce voters' cost of living." The lesson from the second half of 2024, when Trump's criticism of Powell反而 pushed up long-term rates due to market担忧, is深刻.
Therefore, political constraints dictate the reform timetable: maintain a steady pace before the midterms, avoid major moves; only after the election is there space to推进 institutional adjustments. This is likely the realistic path Warsh learned from his political斡旋 experience in the White House.
The November 2026 midterm elections may serve as a natural dividing line for policy rhythm.
Phase 1 (May - November): Warsh's core objective is to配合 White House political demands without triggering market panic, implementing a limited number of rate cuts. Perhaps each cut will spark discussions about the endpoint of the cutting cycle.
On one hand, the Fed's communication style may shift. Reducing the frequency of the dot plot, fewer details in post-meeting press conferences, limiting official speeches—these reforms only require FOMC consensus. The market will quickly feel that Fed guidance may be less frequent than in the Powell era, policy path uncertainty will rise, volatility premiums will increase, and the boost from rate cut expectations for risk assets will diminish.
On the other hand, the balance sheet will not rashly accelerate QT. As mentioned,只有当 liquidity indicators明显 improve (ON RRP rebounds, spreads narrow, SRF usage declines) can Warsh potentially persuade FOMC members to implement QT measures. The prerequisite is avoiding a 2019-style repo market crisis.
Phase 2 (Post-November): Gradual testing of reforms will be the main approach. Regardless of the Republican outcome in the midterms, Warsh's reforms will likely be incremental, not involving激进 QT or immediately announcing tighter policy.
Warsh might combine internal FOMC opinion differences and financial market reactions to推进 reform measures. For example, Warsh believes if the IORB is too high, banks lose incentive to lend to the real economy. Potential steps include lowering the IORB and simplifying the forward guidance framework.
Warsh's Wall Street experience makes him understand that institutional change requires giving the market sufficient time to adapt. If market reactions are calm and money market rate volatility is controllable, then consider the next step; if abnormal volatility occurs, pause immediately and reassess.
If the U.S. economy enters a recession in 2027-28, Warsh's reform agenda would face a dilemma. This is why, compared to the Powell era, Warsh's monetary policy stance is unlikely to significantly impact capital markets before the election. Only if the White House stabilizes its position in the midterms will Warsh have the political capital to推进 long-term adjustments afterward.
It is essential to emphasize that Warsh's nomination is merely the "straw that broke the camel's back" regarding liquidity concerns, not the sole cause. The structural "funding shortage" triggered by the depletion of ON RRP since Q4 2025, over-leveraged speculation in precious metals, and the valuation correction as AI expectations moderated collectively contributed to the sharp price volatility in precious metals and risk assets.
For global capital markets, the "Warsh shock"真正 changes is not the rate decision of a single meeting, but the market's expectation for the future path of monetary policy and liquidity over the coming years.一旦 the market begins to believe that the new Chair is more concerned with monetary discipline, more cautious about the balance sheet, and more sensitive to long-term institutional costs, volatility will明显 rise.
On one hand, Warsh will likely配合 limited rate cuts in a more restrained manner before the midterms and use regulatory and technical measures to stabilize financing conditions, providing a window for阶段性 market repair. But on the other hand, as long as Warsh continues to释放 "reform expectations," term premiums and uncertainty premiums will be repriced. The first to feel pressure will be high-valuation assets reliant on financing conditions (tech growth, crypto, various high-leverage trades). Precious metals will switch between "safe-haven narratives" and "deleveraging," exhibiting high volatility.
More importantly, this volatility can be self-reinforcing: once asset prices pull back, the market worries not only about weakening fundamentals but also about further liquidity tightening and less controllable policy节奏, potentially triggering secondary selling. Conversely, if risk assets rebound, it could easily be interpreted as excessively loose financial conditions, limiting future easing space.
Therefore, overall, the weak USD narrative remains unbroken, and tech-oriented styles may still dominate. However, against a backdrop of amplified volatility, U.S. stocks may focus more on fundamentals, and a回归 of value sectors is值得注意. Simultaneously, controlling exposure to high valuations and high leverage is crucial to avoid significant drawdowns during phases of expected liquidity tightening. For domestic investors in China, constructing a balanced portfolio is advisable to hedge against potential spillover effects from U.S. liquidity shocks impacting tech stocks.
Risks include: 1) Uncertainty surrounding Warsh's nomination and policy implementation, including potential反复 in Senate confirmation and political博弈; the FOMC is a collective body, making unilateral Chair-driven policy shifts like QT difficult. 2) U.S. inflation, employment, and economic data falling short of expectations. 3) U.S. stock market liquidity tightening more than expected.