Hello and welcome to the latest edition of the Week Ahead!
It has been a dramatic week in the markets, and so for once it’s worth reflecting in this article on what has just happened.
Just a few hours ago (it is Friday evening, UK-time), President Trump confirmed that Kevin Warsh will be the next Chairman of the Federal Reserve, in his usual all-caps style:
I am pleased to announce that I am nominating Kevin Warsh to be the CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM…
I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best. On top of everything else, he is “central casting,” and he will never let you down. Congratulations Kevin! PRESIDENT DONALD J. TRUMP
Kevin Warsh is not a PhD economist, but does have formidable Wall Street and Federal Reserve experience, and was the favourite to win this appointment (as we discussed earlier this month).
He is a serious appointment, and in some ways a surprising choice for a President who has spent years blasting the Fed for not cutting interest rates aggressively enough.
Warsh is considered to be a “hawk” when it comes to Fed policy, arguing that the Fed’s balance sheet is too large and needs to be reduced, with balance sheet reduction being a necessary counterpart to interest rate cuts.
In other words, Warsh might be amenable to rate cuts: but only if they go hand in hand with disposals of the Fed’s holdings - an action which inevitably raises the rates actually paid by the US government.
For example, this is from November 2025:
Warsh elaborated that he believes the Fed should “abandon the dogma that inflation is caused when the economy grows too much and workers get paid too much,” arguing that the Fed’s “bloated balance sheet, designed to support the biggest firms in a bygone crisis era, can be reduced significantly.”
“That largesse can be redeployed in the form of lower interest rates to support households and small and medium-size businesses,” Warsh concluded.
For context, the Fed’s current balance sheet is some $6.5 trillion, of which $4.2 trillion are US Treasuries:
Source: congress.gov
Warsh only has…
