By Nicole Goodkind

Kevin Warsh came before the Senate Banking Committee on April 21 with a simple message: The Federal Reserve is broken, and he is the person to fix it.

Warsh, 56, a former Fed governor and successful investor, is President Donald Trump's nominee to become the 17th chair of the Fed, replacing current Chair Jerome Powell, whose term ends on May 15. Warsh has laid out a vision for America's central bank that differs notably from Powell's and that of other recent Fed leaders. He has argued that the Fed should move faster to implement monetary policy, trust markets more, and narrow its footprint in the policy realm. Specifically, he wants to cut interest rates, shrink the Fed's $6.7 trillion balance sheet, and reform how the institution communicates and conducts policy.

The biggest obstacle to Warsh's confirmation fell away on Friday, when the Department of Justice closed a criminal investigation into Powell's handling of the renovation of the Fed's Washington, D.C., headquarters, handing the matter back to the Fed's own inspector general. Sen. Thom Tillis (R., N.C.) had vowed to withhold his "yea" vote until the probe had ended. The Senate will have to move quickly to schedule a confirmation vote, but for the first time in months, a timely leadership transition at the Fed seems all but assured.

Far less certain, however, is Warsh's ability to realize his ambitious agenda, given persistent inflation, rising oil prices, and the increasingly hawkish tilt of the Federal Open Market Committee, the Fed's policy-setting arm. Although Warsh enjoys widespread support in the business community, among investors, and even among politicians, he may find that his plans are dead on arrival, especially if the Iran war, which began on Feb. 28, doesn't end soon.

The Fed is expected to hold its federal-funds rate target range steady at a current 3.50% to 3.75% at the April 28-29 FOMC meeting -- and for a long time thereafter. Odds are now greater than 50% that it won't lower rates until July 2027, based on the CME FedWatch tool, which calculates probabilities implied by fed-funds futures prices. Assuming Warsh takes office in May, that would be more than a year into his four-year term.

Warsh is preparing to step into the most important economic policy job in the world at a time when the Fed's dual mandate -- to promote full employment and price stability -- looks increasingly difficult to achieve. On the employment side, the labor market has shown signs of softening since last summer.

The labor-force participation rate fell in March to its lowest level since November 2021, and its lowest level since 1977 excluding the Covid pandemic era. Job growth has been meager at best. Job openings, hirings, and quits have all declined this year, according to the Bureau of Labor Statistics' monthly Job Openings and Labor Turnover Survey, while layoff announcements have ticked up, particularly in sectors most exposed to artificial-intelligence displacement and federal spending cuts.

Elevated inflation, now approaching 3% annually, may be a bigger problem, as Warsh explained in his Senate hearing. In his opening remarks, he called inflation a "choice" for which the Fed must take responsibility. Later, he told the committee that the Fed's failure to act to cap inflation in 2021 and '22 was " the biggest economic policy error in 40 or 50 years."

In 2021, as price growth began accelerating in the aftermath of the Covid pandemic, Powell termed the increase transitory, a product of supply-chain bottlenecks and other post-Covid distortions that it assumed would resolve. Eventually, most did, but the Fed's confidence that it could wait out the normalization process critically delayed its policy response by many months.

By the time the FOMC began raising rates in March 2022, inflation had hit a 40-year high of about 9%, forcing policymakers to implement the most aggressive rate-hiking cycle in a generation. "Transitory" went from a party line to a punchline, one the Fed is still trying to live down.

In many respects, the Powell Fed has done a decent job since. The Fed hiked the fed-funds rate from near zero to a peak of 5.25% to 5.50% in July 2023 without tipping the economy into a much-feared recession. By the end of 2024, gross domestic product was growing at a 2.5% annualized rate, the labor market was at full employment, and inflation appeared to be approaching the Fed's 2% annual target.

A more sanguine Fed cut rates three times, first by half a percentage point and then by two quarter-points, in the second half of 2024, and followed up with three more quarter-point cuts in the back half of '25. But inflation has ticked up since, leaving Fed watchers to wonder whether the latest easing cycle was prudent or misguided.

The Fed declined to comment.

The personal consumption expenditures price index, the Fed's preferred inflation measure, rose 2.8% in February on an annual basis, and that's before a surge in oil prices since the start of the Iran war. The Fed raised its 2026 inflation forecast to 2.7% at its March policy meeting from 2.4% in December. The Powell Fed's failure to finish the job and bring inflation back down to 2% will complicate Warsh's ability to lower rates, especially if oil prices stay elevated, as expected, after the war ends.

Numerous polls have shown that inflation is a top concern for voters, especially with food prices high and gasoline now above $4 a gallon in many parts of the country. Vincent Reinhart, chief economist at BNY Investments, a Fed veteran, and former secretariat of the FOMC, says the postpandemic inflation surge broke the public's trust in the Fed in ways that data alone don't capture.

Warsh understands this, and is dedicated to repairing the damage. He also says he is committed to preserving the Fed's independence from political pressure, and told the Senate committee that Trump isn't telling him what to do or think. "He didn't ask for it; he didn't demand it; he didn't require it," Warsh said of any commitment to lower the federal-funds rate.

Democrats on the committee were unconvinced, with Sen. Elizabeth Warren (D., Mass.) calling him the president's " sock puppet."

"Kevin Warsh's unimpeachable background speaks for itself," a White House spokesman told Barron's. "His academic credentials, private-sector success, and prior experience on the Fed board of governors make him eminently qualified to serve as our next Fed chairman, and the White House continues to work with the Senate to ensure his swift confirmation."

Warsh's office declined to comment.

In many ways, Warsh has spent his career preparing for the job of Fed chair. He was the youngest Fed governor in history, at 35, when he joined the board in 2006, having previously served in the George W. Bush administration as special assistant to the president for economic policy. During the 2008-09 financial crisis, he served as then-Fed Chair Ben Bernanke's primary conduit to the CEOs of systemically important banks.

Warsh left the Fed in 2011, dismayed by the growth of its balance sheet in the aftermath of the financial crisis. He then went back to the Hoover Institution at Stanford University, and became a partner in Duquesne Capital Management, run by legendary investor Stanley Druckenmiller.

If confirmed, he would be the wealthiest Fed chair ever. Financial disclosure filings show his total assets are valued at more than $131 million. His wife, Jane Lauder, is a billionaire heir to the Estée Lauder cosmetics empire. Warsh has pledged to divest nearly all of his investments if he becomes Fed chair.

Warsh's nomination has been cheered by much of the business and investment community. Jamie Dimon, CEO of JPMorgan Chase, endorsed him before Trump made his pick, telling attendees at a private JPMorgan event that "Kevin Warsh would make a great chairman." Ken Griffin, founder of Citadel, the alternative-assets giant, called Warsh a "really solid choice."

James Knightley, chief international economist at ING, says of Warsh: "He's got the experience; he knows the whole process. He is seen as a very good, safe pair of hands."

Warsh's agenda for the Fed rests on three big ideas. The first is that interest rates should be lower. Once considered a policy hawk, he resisted rate cuts during and after the financial crisis, arguing at the time that they would hurt the Fed's credibility on inflation and "degrade" financial markets. More recently, he has become an advocate for lower rates, a pivot that his critics say conveniently coincided with Trump's search for a Fed chair who would ease policy. Warsh has said his views evolved as the facts changed.

While he called interest rates a "sideshow" to the need for balance-sheet reduction in a July 2024 Wall Street Journal op-ed, he argued at the time of his nomination last fall that lower rates could help the economy achieve its " next degree of acceleration," particularly for first-time home buyers struggling with high mortgage rates.

The second idea, shrinking the balance sheet, took root after the financial crisis. Warsh believed that the Fed's bond-buying programs, launched by Bernanke to support the economy and known as quantitative easing, distorted markets and expanded the Fed's footprint beyond an appropriate size.

When Warsh joined the board of governors in 2006, the balance sheet was about $800 billion. Scaled for economic growth since then, it should be roughly $2.5 trillion to $3 trillion today, he has said. Instead, through successive rounds of crisis-era bond buying during the financial crisis and again amid the pandemic, it ballooned to about $9 trillion at its peak, before the FOMC voted last year to allow certain assets to run off without reinvesting the proceeds.

Warsh has called a huge Fed balance sheet "fiscal policy in disguise."

While cutting the balance sheet would reduce liquidity in the financial system, lower interest rates would counteract the negative effect, he has said. The Fed's holdings of Treasury bonds and mortgage-backed securities suppress long-term rates by reducing the supply of bonds available to private investors. If the Fed sells off some of those holdings or doesn't replace them when they mature, long rates would tend to rise -- a form of tightening. But if the Fed simultaneously lowers the short-term policy rate, both moves could offset each other.

That gets to his third idea: a belief that AI could usher in a disinflationary productivity surge comparable to the 1990s internet boom, expanding the economy's capacity to produce goods and services without generating price pressure. That might give the Fed room, in Warsh's framework, to cut rates before inflation falls back down to 2%.

Warsh draws a parallel to Alan Greenspan's decision in the late 1990s to let the economy run hot, trusting that productivity gains would keep inflation in check. But not many people, inside or outside the Fed, are buying that argument as a basis for action now.

Fed governor Michael Barr has said that stronger productivity growth could push the neutral rate of interest -- the theoretical rate that neither stimulates nor restricts growth -- higher, not lower. Cleveland Fed President Beth Hammack has said something similar, warning that the Fed should hold rates steady for a while, given the risk of supply-side shocks.

The current FOMC is tilted toward caution, and Warsh would need to convince several members of his view to enact a meaningful easing cycle.

Economist Ed Yardeni, president of Yardeni Research, shares Warsh's optimism about AI's productivity-boosting potential, but reaches the opposite conclusion about what it means for interest rates. Yardeni, like Barr, thinks a productivity boom would raise the neutral rate because it draws in capital investment while the pool of national savings is shrinking. If the Fed cuts rates below that higher neutral rate, Yardeni warns, it risks fueling financial speculation and instability.

Michael Hunstad, president of Northern Trust Asset Management, says AI could be one of the biggest positive supply shocks ever. But the implications, in his view, also run counter to Warsh's. "If we really believe in the productivity of AI, we should be raising rates," he says.

The Fed's tools are all about managing demand, Hunstad says. If the supply side of the economy is growing because of AI, cutting rates to stimulate demand "doesn't make any sense," he says.

Warsh was more measured on the subject in his Senate hearing than he had been in recent speeches. He acknowledged the Fed "can't bank on" productivity gains materializing, and said much work needs to be done to evaluate the AI impact before building policy around it. He also signaled interest in judging inflation by trimmed-mean measures, which strip out outliers among measured categories of goods and services. Taking that approach, core PCE inflation, which excludes food and energy, would be running closer to 2.3% than 3%.

For all of the political drama preceding Warsh's nomination, and now his confirmation, financial markets have been unperturbed about the looming transition at the Fed. Warsh's views on interest rates and the Fed's balance sheet are "only of marginal importance in determining the course of actual policy," wrote analysts at RBC Capital Markets in a client note last week.

The FOMC is a committee, after all, and the chair has just one vote.

That assessment may be incomplete. Reinhart, who spent 24 years at the Fed, warns against assuming the institution will just roll along. A new chair with a more assertive posture could shift the internal dynamics at the Fed in ways the markets haven't yet presumed. The balance-sheet debate, if pressed, could introduce new volatility.

Yardeni expects the 10-year Treasury yield to remain above 4%, trading in a range of 4.25% to 4.75% for the rest of the year. It will be held up, he writes, by the same structural forces, including strong investment demand and a shrinking savings pool, that he believes are pushing the neutral rate higher.

Even if Warsh wants to cut rates, Yardeni says, the bond vigilantes will resist, just as they have since the easing cycle began in September 2024. The 10-year yield and the 30-year mortgage rate are both roughly back to where they were before the Fed started cutting rates then, a sign that the market has concluded the cuts didn't accomplish much.

Hunstad, at Northern Trust, thinks debating the Fed's next move is in some ways beside the point. "AI is going to have a lot more impact on output, on inflation, than a 25-basis-point cut here or there," he says. (A basis point is a hundredth of a percentage point.)

He advises investors to lean into risk with higher equity allocations and exposure to infrastructure and sectors that benefit from the AI buildout. S&P 500 index profit margins are at a record 13.6%. He expects them to climb to 14.5% next year and 15.5% in 2028. "Never before in the history of the market have we had that kind of profit margin," he says.

If the Senate doesn't confirm Warsh before Powell's term as chair ends, Powell has said he would remain chair pro tempore until his successor is named. He has also said he would remain on the Fed's board of governors until the Department of Justice investigation is "well and truly over."

His term as a Fed governor ends in January 2028, but an earlier departure now seems likely, even though U.S. Attorney Jeanine Pirro said on Friday that she would "not hesitate" to reopen a criminal investigation if the inspector general's findings warrant it.

Trump told Fox Business earlier this month that if Powell doesn't leave when his term as chair expires, "I'll have to fire him."

The best outcome for the Fed and financial markets would be a timely Senate vote confirming Warsh, and a changing of the guard before the Fed's June 16-17 policy meeting. There is now a good chance both will happen.

The path to a Warsh Fed is clearing. Wall Street and Main Street will learn soon enough whether he has the right tool kit, at the right time, for the economy and the Fed.

Write to Nicole Goodkind at nicole.goodkind@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

By Nicole Goodkind

Kevin Warsh came before the Senate Banking Committee on April 21 with a simple message: The Federal Reserve is broken, and he is the person to fix it.

Warsh, 56, a former Fed governor and successful investor, is President Donald Trump's nominee to become the 17th chair of the Fed, replacing current Chair Jerome Powell, whose term ends on May 15. Warsh has laid out a vision for America's central bank that differs notably from Powell's and that of other recent Fed leaders. He has argued that the Fed should move faster to implement monetary policy, trust markets more, and narrow its footprint in the policy realm. Specifically, he wants to cut interest rates, shrink the Fed's $6.7 trillion balance sheet, and reform how the institution communicates and conducts policy.

The biggest obstacle to Warsh's confirmation fell away on Friday, when the Department of Justice closed a criminal investigation into Powell's handling of the renovation of the Fed's Washington, D.C., headquarters, handing the matter back to the Fed's own inspector general. Sen. Thom Tillis (R., N.C.) had vowed to withhold his "yea" vote until the probe had ended. The Senate will have to move quickly to schedule a confirmation vote, but for the first time in months, a timely leadership transition at the Fed seems all but assured.

Far less certain, however, is Warsh's ability to realize his ambitious agenda, given persistent inflation, rising oil prices, and the increasingly hawkish tilt of the Federal Open Market Committee, the Fed's policy-setting arm. Although Warsh enjoys widespread support in the business community, among investors, and even among politicians, he may find that his plans are dead on arrival, especially if the Iran war, which began on Feb. 28, doesn't end soon.

The Fed is expected to hold its federal-funds rate target range steady at a current 3.50% to 3.75% at the April 28-29 FOMC meeting -- and for a long time thereafter. Odds are now greater than 50% that it won't lower rates until July 2027, based on the CME FedWatch tool, which calculates probabilities implied by fed-funds futures prices. Assuming Warsh takes office in May, that would be more than a year into his four-year term.

Warsh is preparing to step into the most important economic policy job in the world at a time when the Fed's dual mandate -- to promote full employment and price stability -- looks increasingly difficult to achieve. On the employment side, the labor market has shown signs of softening since last summer.

The labor-force participation rate fell in March to its lowest level since November 2021, and its lowest level since 1977 excluding the Covid pandemic era. Job growth has been meager at best. Job openings, hirings, and quits have all declined this year, according to the Bureau of Labor Statistics' monthly Job Openings and Labor Turnover Survey, while layoff announcements have ticked up, particularly in sectors most exposed to artificial-intelligence displacement and federal spending cuts.

Elevated inflation, now approaching 3% annually, may be a bigger problem, as Warsh explained in his Senate hearing. In his opening remarks, he called inflation a "choice" for which the Fed must take responsibility. Later, he told the committee that the Fed's failure to act to cap inflation in 2021 and '22 was " the biggest economic policy error in 40 or 50 years."

In 2021, as price growth began accelerating in the aftermath of the Covid pandemic, Powell termed the increase transitory, a product of supply-chain bottlenecks and other post-Covid distortions that it assumed would resolve. Eventually, most did, but the Fed's confidence that it could wait out the normalization process critically delayed its policy response by many months.

By the time the FOMC began raising rates in March 2022, inflation had hit a 40-year high of about 9%, forcing policymakers to implement the most aggressive rate-hiking cycle in a generation. "Transitory" went from a party line to a punchline, one the Fed is still trying to live down.

In many respects, the Powell Fed has done a decent job since. The Fed hiked the fed-funds rate from near zero to a peak of 5.25% to 5.50% in July 2023 without tipping the economy into a much-feared recession. By the end of 2024, gross domestic product was growing at a 2.5% annualized rate, the labor market was at full employment, and inflation appeared to be approaching the Fed's 2% annual target.

A more sanguine Fed cut rates three times, first by half a percentage point and then by two quarter-points, in the second half of 2024, and followed up with three more quarter-point cuts in the back half of '25. But inflation has ticked up since, leaving Fed watchers to wonder whether the latest easing cycle was prudent or misguided.

The Fed declined to comment.

The personal consumption expenditures price index, the Fed's preferred inflation measure, rose 2.8% in February on an annual basis, and that's before a surge in oil prices since the start of the Iran war. The Fed raised its 2026 inflation forecast to 2.7% at its March policy meeting from 2.4% in December. The Powell Fed's failure to finish the job and bring inflation back down to 2% will complicate Warsh's ability to lower rates, especially if oil prices stay elevated, as expected, after the war ends.

Numerous polls have shown that inflation is a top concern for voters, especially with food prices high and gasoline now above $4 a gallon in many parts of the country. Vincent Reinhart, chief economist at BNY Investments, a Fed veteran, and former secretariat of the FOMC, says the postpandemic inflation surge broke the public's trust in the Fed in ways that data alone don't capture.

Warsh understands this, and is dedicated to repairing the damage. He also says he is committed to preserving the Fed's independence from political pressure, and told the Senate committee that Trump isn't telling him what to do or think. "He didn't ask for it; he didn't demand it; he didn't require it," Warsh said of any commitment to lower the federal-funds rate.

Democrats on the committee were unconvinced, with Sen. Elizabeth Warren (D., Mass.) calling him the president's " sock puppet."

"Kevin Warsh's unimpeachable background speaks for itself," a White House spokesman told Barron's. "His academic credentials, private-sector success, and prior experience on the Fed board of governors make him eminently qualified to serve as our next Fed chairman, and the White House continues to work with the Senate to ensure his swift confirmation."

Warsh's office declined to comment.

In many ways, Warsh has spent his career preparing for the job of Fed chair. He was the youngest Fed governor in history, at 35, when he joined the board in 2006, having previously served in the George W. Bush administration as special assistant to the president for economic policy. During the 2008-09 financial crisis, he served as then-Fed Chair Ben Bernanke's primary conduit to the CEOs of systemically important banks.

Warsh left the Fed in 2011, dismayed by the growth of its balance sheet in the aftermath of the financial crisis. He then went back to the Hoover Institution at Stanford University, and became a partner in Duquesne Capital Management, run by legendary investor Stanley Druckenmiller.

If confirmed, he would be the wealthiest Fed chair ever. Financial disclosure filings show his total assets are valued at more than $131 million. His wife, Jane Lauder, is a billionaire heir to the Estée Lauder cosmetics empire. Warsh has pledged to divest nearly all of his investments if he becomes Fed chair.

Warsh's nomination has been cheered by much of the business and investment community. Jamie Dimon, CEO of JPMorgan Chase, endorsed him before Trump made his pick, telling attendees at a private JPMorgan event that "Kevin Warsh would make a great chairman." Ken Griffin, founder of Citadel, the alternative-assets giant, called Warsh a "really solid choice."

James Knightley, chief international economist at ING, says of Warsh: "He's got the experience; he knows the whole process. He is seen as a very good, safe pair of hands."

Warsh's agenda for the Fed rests on three big ideas. The first is that interest rates should be lower. Once considered a policy hawk, he resisted rate cuts during and after the financial crisis, arguing at the time that they would hurt the Fed's credibility on inflation and "degrade" financial markets. More recently, he has become an advocate for lower rates, a pivot that his critics say conveniently coincided with Trump's search for a Fed chair who would ease policy. Warsh has said his views evolved as the facts changed.

While he called interest rates a "sideshow" to the need for balance-sheet reduction in a July 2024 Wall Street Journal op-ed, he argued at the time of his nomination last fall that lower rates could help the economy achieve its " next degree of acceleration," particularly for first-time home buyers struggling with high mortgage rates.

The second idea, shrinking the balance sheet, took root after the financial crisis. Warsh believed that the Fed's bond-buying programs, launched by Bernanke to support the economy and known as quantitative easing, distorted markets and expanded the Fed's footprint beyond an appropriate size.

When Warsh joined the board of governors in 2006, the balance sheet was about $800 billion. Scaled for economic growth since then, it should be roughly $2.5 trillion to $3 trillion today, he has said. Instead, through successive rounds of crisis-era bond buying during the financial crisis and again amid the pandemic, it ballooned to about $9 trillion at its peak, before the FOMC voted last year to allow certain assets to run off without reinvesting the proceeds.

Warsh has called a huge Fed balance sheet "fiscal policy in disguise."

While cutting the balance sheet would reduce liquidity in the financial system, lower interest rates would counteract the negative effect, he has said. The Fed's holdings of Treasury bonds and mortgage-backed securities suppress long-term rates by reducing the supply of bonds available to private investors. If the Fed sells off some of those holdings or doesn't replace them when they mature, long rates would tend to rise -- a form of tightening. But if the Fed simultaneously lowers the short-term policy rate, both moves could offset each other.

That gets to his third idea: a belief that AI could usher in a disinflationary productivity surge comparable to the 1990s internet boom, expanding the economy's capacity to produce goods and services without generating price pressure. That might give the Fed room, in Warsh's framework, to cut rates before inflation falls back down to 2%.

Warsh draws a parallel to Alan Greenspan's decision in the late 1990s to let the economy run hot, trusting that productivity gains would keep inflation in check. But not many people, inside or outside the Fed, are buying that argument as a basis for action now.

Fed governor Michael Barr has said that stronger productivity growth could push the neutral rate of interest -- the theoretical rate that neither stimulates nor restricts growth -- higher, not lower. Cleveland Fed President Beth Hammack has said something similar, warning that the Fed should hold rates steady for a while, given the risk of supply-side shocks.

The current FOMC is tilted toward caution, and Warsh would need to convince several members of his view to enact a meaningful easing cycle.

Economist Ed Yardeni, president of Yardeni Research, shares Warsh's optimism about AI's productivity-boosting potential, but reaches the opposite conclusion about what it means for interest rates. Yardeni, like Barr, thinks a productivity boom would raise the neutral rate because it draws in capital investment while the pool of national savings is shrinking. If the Fed cuts rates below that higher neutral rate, Yardeni warns, it risks fueling financial speculation and instability.

Michael Hunstad, president of Northern Trust Asset Management, says AI could be one of the biggest positive supply shocks ever. But the implications, in his view, also run counter to Warsh's. "If we really believe in the productivity of AI, we should be raising rates," he says.

The Fed's tools are all about managing demand, Hunstad says. If the supply side of the economy is growing because of AI, cutting rates to stimulate demand "doesn't make any sense," he says.

Warsh was more measured on the subject in his Senate hearing than he had been in recent speeches. He acknowledged the Fed "can't bank on" productivity gains materializing, and said much work needs to be done to evaluate the AI impact before building policy around it. He also signaled interest in judging inflation by trimmed-mean measures, which strip out outliers among measured categories of goods and services. Taking that approach, core PCE inflation, which excludes food and energy, would be running closer to 2.3% than 3%.

For all of the political drama preceding Warsh's nomination, and now his confirmation, financial markets have been unperturbed about the looming transition at the Fed. Warsh's views on interest rates and the Fed's balance sheet are "only of marginal importance in determining the course of actual policy," wrote analysts at RBC Capital Markets in a client note last week.

The FOMC is a committee, after all, and the chair has just one vote.

That assessment may be incomplete. Reinhart, who spent 24 years at the Fed, warns against assuming the institution will just roll along. A new chair with a more assertive posture could shift the internal dynamics at the Fed in ways the markets haven't yet presumed. The balance-sheet debate, if pressed, could introduce new volatility.

Yardeni expects the 10-year Treasury yield to remain above 4%, trading in a range of 4.25% to 4.75% for the rest of the year. It will be held up, he writes, by the same structural forces, including strong investment demand and a shrinking savings pool, that he believes are pushing the neutral rate higher.

Even if Warsh wants to cut rates, Yardeni says, the bond vigilantes will resist, just as they have since the easing cycle began in September 2024. The 10-year yield and the 30-year mortgage rate are both roughly back to where they were before the Fed started cutting rates then, a sign that the market has concluded the cuts didn't accomplish much.

Hunstad, at Northern Trust, thinks debating the Fed's next move is in some ways beside the point. "AI is going to have a lot more impact on output, on inflation, than a 25-basis-point cut here or there," he says. (A basis point is a hundredth of a percentage point.)

He advises investors to lean into risk with higher equity allocations and exposure to infrastructure and sectors that benefit from the AI buildout. S&P 500 index profit margins are at a record 13.6%. He expects them to climb to 14.5% next year and 15.5% in 2028. "Never before in the history of the market have we had that kind of profit margin," he says.

If the Senate doesn't confirm Warsh before Powell's term as chair ends, Powell has said he would remain chair pro tempore until his successor is named. He has also said he would remain on the Fed's board of governors until the Department of Justice investigation is "well and truly over."

His term as a Fed governor ends in January 2028, but an earlier departure now seems likely, even though U.S. Attorney Jeanine Pirro said on Friday that she would "not hesitate" to reopen a criminal investigation if the inspector general's findings warrant it.

Trump told Fox Business earlier this month that if Powell doesn't leave when his term as chair expires, "I'll have to fire him."

The best outcome for the Fed and financial markets would be a timely Senate vote confirming Warsh, and a changing of the guard before the Fed's June 16-17 policy meeting. There is now a good chance both will happen.

The path to a Warsh Fed is clearing. Wall Street and Main Street will learn soon enough whether he has the right tool kit, at the right time, for the economy and the Fed.

Write to Nicole Goodkind at nicole.goodkind@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 24, 2026 18:58 ET (22:58 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.