Key Points
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Several actions Warsh could take may be potentially problematic for stocks, but not catastrophic.
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However, the new Fed chair could do one thing that would likely lead to panic-selling across asset classes.
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The good news is that Warsh has promised to not make the potentially cataclysmic move.
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When Jerome Powell served as Federal Reserve chair, the central bank’s policy decisions were largely predictable. Powell typically telegraphed in advance what changes were likely to come. He answered questions in press conferences in a way that, at least for the most part, reassured markets.
But Powell is no longer at the helm of the Federal Reserve. He passed the baton to President Trump’s nominee, Kevin Warsh, on May 22, 2026. Warsh has called for “regime change” at the Fed. Uncertainty about what actions he might take has caused some investors to worry. Many of those concerns are almost certainly overblown. However, there’s one thing Warsh could do that would actually crash the stock market.
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Potentially problematic, but not catastrophic
Warsh could take several actions that would be potentially problematic for stocks, but not catastrophic. For example, he could be much less communicative than his predecessor. Warsh stated at the International Monetary Fund meeting last year, “The central bank should find new comfort in working without applause and without the audience at the edge of its seats.”
Investors may have to become accustomed to receiving less information about Fed moves than they have in the past. While there would likely be an adjustment period, I doubt that the stock market would tank because Warsh played things closer to the vest than his predecessors.
I don’t think changing the Fed’s preferred inflation metrics would roil markets too much either. Warsh favors using the trimmed mean inflation rate rather than the Personal Consumption Expenditures (PCE) inflation rate. The trimmed mean removes extreme outliers from the core inflation rate and uses a weighted average of the remaining items.
Warsh has been viewed as an inflation hawk throughout his career. What if he pushes for interest rate hikes to control inflation? Stocks would likely sink. However, if the rate increases were small and made incrementally, this probably wouldn’t automatically signal the beginning of a bear market or cause a crash.
Another controversial position promoted by Warsh is to drastically shrink the Fed’s balance sheet. If he moved too quickly on this front, it would spell bad news for stocks. However, markets have handled gradual quantitative tightening in the past. As long as Warsh didn’t administer too great a shock to the system,