Overview
- Kevin Warsh was sworn in as Fed chair on May 22 and has publicly called for a “regime change” that emphasizes interest‑rate policy over balance‑sheet actions.
- Recent data have strengthened Warsh’s case: the April and May reports showed inflation near 3.8 percent and strong hiring that pushed markets to largely rule out cuts this year.
- Traders have moved quickly, with futures pricing now giving slim odds of a cut this year and higher chances of rate hikes later in 2026, reflecting a rapid market repricing of Fed policy.
- Several Fed officials have publicly questioned Warsh’s assumptions on inflation measurement, productivity gains and balance‑sheet reduction, setting up a contested June 16–17 FOMC meeting.
- Shrinking the Fed’s roughly $6.7 trillion balance sheet would require selling long‑term Treasuries and mortgage securities, a move that could lift long‑term borrowing costs and affect mortgages and corporate loans for households and businesses.