The new Fed Chair.

Hi Carl,

Trump probably picked Warsh because he has genuine Fed credentials and strong market credibility, qualities that help avoid spooking bond markets, the dollar, and inflation expectations, and that also make Senate confirmation far smoother, while still choosing someone who has recently criticised the Fed and shown openness to easier policy, just not necessarily Trump’s “cut rates to 1% immediately” vision.

At the end of the day, the credibility of the  the Fed is very important for the U.S and their ability to borrow money, and Trump would recognise that.

Even if Trump instilled a chair who’d blindly comply, the chair can’t unilaterally set rates: the FOMC is a voting committee, and trying to force extreme cuts would likely meet internal resistance and blow up the Fed’s legitimacy. Hence we feel it’s less a “moment of clarity” and more a strategic compromise: pick someone aligned enough to push in your preferred direction, but credible enough to preserve the appearance (and some reality) of Fed independence—and Warsh is probably firm enough not to be bullied into obviously irresponsible cuts, even if he’ll be under heavy pressure.

This question is very well timed after the RBA hiked rates 0.25% this week and US stocks experienced a sharp rotation into economically sensitive shares at the expense of AI related names. If the US economy is set to improve as sector rotation suggests further Fed cuts should be questioned in our opinion, especially the two 0.25% cuts being priced in by credit markets before Christmas – optimistic in our opinion, i.e. credit markets are pricing a Fed rate around 3% and an RBA rate above 4% which explains the recent strength in the $A.

chart

US Fed Funds Target Rate

LAST UPDATED 04/02/2026 13:27

Close

chart

US Fed Funds Target Rate

LAST UPDATED 04/02/2026 13:27