Succession at the US Federal Reserve: a policy inflection point

4 hours ago • 15 min read

By Thomas Perfumo, Kraken Chief Economist

CME-listed Fed Funds futures are pricing nearly 70% probability that the US Federal Open Markets Committee (FOMC), the group responsible for setting benchmark interest rates, will leave rates unchanged through the end of 2026.

This is despite elevated geopolitical uncertainty and volatile market conditions. Markets are pricing in policy complacency at the FOMC even after Jerome Powell’s term as chairman ends in May. This positioning presents an opportunity to the extent new leadership moves to meaningfully shift near-term policy vision.

Let’s examine what FOMC policy consensus looks like today. The recent March 2026 FOMC meeting describes it well: reactive, inflation-sensitive, and cautious. The pertinent question is whether this status quo survives a change in leadership.

Answering this requires a review of current committee dynamics and a closer look at Kevin Warsh, the current nominee for Chairman of the US Federal Reserve.

Three likely scenarios have the potential to meaningfully shift the trajectory of risk assets for the foreseeable future, ranging from an extension of the status quo to a reimagination of modern US Federal Reserve policy.

A series of near-term catalysts — a confirmation hearing, an ongoing criminal probe, future FOMC press conferences — will reveal how regime change at the US Federal Reserve impacts risk assets for the remainder of 2026.

Crypto investors should place greater emphasis on shifts in policy concerning market liquidity and the US Federal Reserve balance sheet.

Cracks in the consensus

Recent FOMC voting records offer some signal into current committee dynamics. During 2025, the FOMC logged nine dissenting votes, the highest level in over a decade. The December 2025 meeting alone had three dissenters — a six-year high for a single meeting tally.

With twelve voting members on the committee, this doesn’t represent a crisis. But the record invites us to consider whether near-term leadership transition results in a fundamental regime shift.

The FOMC is composed of twelve voting members: seven members of the Board of Governors, one representative of the Federal Reserve Bank of New York, and four members of the remaining regional Federal Reserve Banks on annual rotation.

Assuming Kevin Warsh is confirmed as Fed Chairman, he replaces the vacancy Stephen Miran is temporarily filling. With Warsh taking over Miran’s seat, he joins an FOMC that includes three other voting members whose records suggest a dovish lean: Bowman, Paulson, and Waller.

Four other members– Williams, Bar, Cook, and Jefferson– are categorically neutral, having consistently voted with consensus. Inclusive of Warsh, the tally rises to 8 members who skew neutral-to-dovish.

It’s important to consider the influence the Chairman role has on FOMC policy. The Chair sets meeting agendas, proposes policy actions, and serves as de facto CEO of the staff that prepare materials to inform the committee’s decision.

Policy is determined by simple majority: seven votes. The FOMC has never outvoted the Chair’s position — a testament to the structural influence of the role.

This composition provides Warsh a plausible path toward consensus with a slight majority — further reinforced if Powell follows traditional practice and departs the Board.

The wild card: Jerome Powell’s exit

Jerome Powell’s term as Chairman ends May 15, 2026. His term as an FOMC Board Governor, however, extends until January 2028, leaving him the option to remain as a voting member even after his chairmanship expires.

This would prove unconventional, though. Outgoing chairs step away to clear the air for new leadership. The last time a chairperson transitioned out of the leadership role but remained as an FOMC voting member was in the 1940s.

Powell remains publicly silent on his personal intentions, but the Department of Justice’s criminal investigation of the US Federal Reserve concerning renovation projects complicates his exit. During the March 2026 FOMC press conference, Powell stated he would remain chairman until his successor is confirmed, and he intends to stay on the Board of Governors until the investigation and legal process reaches a resolution.

Separately, Republican Senator Thom Tillis, who plays a critical role in advancing Warsh’s confirmation through the Banking Committee, is demanding a dismissal of the criminal probe as a condition for his supporting vote for the nomination. As of April 14, 2026, prediction markets indicate a 62% likelihood that Powell will depart the Board of Governors this year.

The important takeaway is that the choice lies with Powell. The good news is his intention to stay seems more explicitly driven by the ongoing probe and US Federal Reserve independence, rather than a desire to further influence monetary policy. In theory, these political matters are resolvable quickly – and at little-to-no cost.

The bad news is the issue remains unresolved and his presence as a Board Governor even after his term as chair expires could, even if unintentional, entrench a coalition for the status quo.

It’s likely the market would receive a resolution to the probe, coupled with Powell’s commitment to step down from the FOMC, favorably. This scenario clears a path for Warsh to potentially build consensus around a policy vision that is forward-leaning and more dovish near-term.

The $6.7 trillion question

Markets yearn for the 2010s — a decade of free-flowing Fed liquidity and zero interest rate policy. But the environment has changed.

Consumer inflation persists above target: the most recent core CPI print came in at +2.6% year-over-year. Unemployment remains low at 4.3%. In isolation, the case for cutting rates is relatively weak. Fixation on the Fed Funds rate, though, is only half the story.

More consequential is what happens to the balance sheet because the policy challenges facing the US government and the average American extend well beyond an overnight bank facility rate. And it’s through the balance sheet that the US Federal Reserve has the ability to impact longer-term interest rates.

As of April 2026, the Fed’s balance sheet sits at $6.7 trillion. Quantitative tightening, a multi-year effort to reduce the size of the balance sheet, officially ended in December 2025 and the Fed is currently purchasing approximately $40 billion per month in T-bills through the April tax season.

Source: Federal Reserve Bank Of St. Louis

Two prominent near-term challenges for the US administration include a US Treasury refinancing cliff and a housing market on pause.

In 2026, roughly $9.6 trillion in US government debt is slated to mature in 2026, over 25% of the total outstanding national debt.,

Much of this debt consists of short-term bills and notes issued during the pandemic-era of 2020–2021, when the Fed held rates near zero. Rolling this debt at rates 3x to 4x higher will push net interest payments past $1 trillion for the first time in history.

Meanwhile, Treasury Secretary Scott Bessent is financing deficits heavily through short-duration T-bills. Bill issuance now represents 22% of total issuance, above the Treasury Borrowing Advisory Committee’s recommended 20% ceiling.

This strategy serves as a form of shadow monetary policy by concentrating the refinancing risk near-term on the assumption that interest rates will become more accommodative when it comes time to roll the debt over in the future.

Meanwhile, persistently high 30-year mortgage rates have frozen housing turnover, adding political pressure to ease credit conditions.

If the US Federal Reserve feels compelled to directly participate in attacking some of these problems from a monetary policy perspective, it requires employing the balance sheet in some form of yield curve control.

Some question whether coordination compromises the independence of the US Federal Reserve, but that concern is a red herring. The US President is responsible for appointing members of the Board of Governors and the Chairman role at the US Federal Reserve.

There’s an inherent political bias in nominee selection to appoint individuals supportive of the President’s agenda. It’s the responsibility of the Congress and their confirmation process, along with extensive term limits, to ensure a high standard of independence.

The decision to nominate Kevin Warsh more likely overlaps with the US administration’s agenda, but historical context leaves room for interpretation.

Kevin Warsh: the hawk who might cut

Warsh’s public record suggests something the market hasn’t fully absorbed: he favors genuine rate cuts.

Warsh’s writings favor rate cuts alongside balance sheet discipline. Warsh sees AI-driven productivity gains as a medium- to long-term disinflationary force, and has criticized the current Federal Reserve’s data-dependence framework as backward-looking and inadequate.

In his view, rates can come down because the structural outlook on inflation will improve without having to wait for something to break. On the balance sheet side, Warsh’s supply-side vision calls for a deregulatory approach that structurally reduces the demand for reserves, allowing the balance sheet to shrink over time.

Warsh’s critical views on balance sheet expansion extend back to his time as a Board Governor prior to his resignation in 2011. He more recently called for reducing what he terms the Federal Reserve’s “bloated balance sheet” and instead advocates for a deregulatory agenda to support private sector growth.

On this point, the market’s initial reaction to Warsh as a “hawk” – or someone advocating for tighter monetary policy – seems reasonable. Between mid-January and early February, Bitcoin fell roughly 20% in lockstep with Polymarket odds shifting toward Warsh — while the S&P 500 and Nasdaq held steady.

Source: Polymarket, Kraken

Given Bitcoin’s historical relationship with liquidity, recent performance validates the thesis that current expectations bias towards a tighter liquidity environment. But what if this is an overreaction?

One read of his vision suggests consistency in his objective to bolster market liquidity to support productive investments, inclusive of disruptive technologies like AI. This nuance matters because a forward-looking agenda optimizing for investment and productivity growth is more likely supportive of risk assets longer-term, even if the delivery mechanism — deregulation, balance sheet expansion, etc. — to achieve that goal mechanism leans more so on the private sector.

Three roads from here

Three scenarios seem most likely in the context of a Warsh-led US Federal Reserve. The first, an extension of the status quo, which market expectations seem to anchor toward. The latter two involve short-term easing of monetary policy varying for how aggressively we shift from the status quo.

1. The Grind (status quo)

In this scenario, the US Fed Funds rate stays in the 3.25% to 3.75% range through year-end 2026, dependent on cooler inflation data in the second half of 2026.

Balance sheet policy may call for some modest expansion through Treasury bill purchases, a continuation of the current policy. The dot plot will continue to indicate one or two rate cuts as the median forecast, but execution is more often deferred to a subsequent meeting.

This outcome has the weight of institutional inertia behind it. The Fed’s revealed preference over the past year has been to defer action, and absent a forcing function, committees tend to preserve the existing framework.

This is the Grind: risk assets like equities trade on fundamental catalysts and macroeconomic headlines, rather than liquidity conditions. Crypto markets likely remain rangebound with breakouts driven by crypto-specific catalysts like progress on the CLARITY Act, changes in net investment flows from ETFs, or growth in stablecoins and tokenized assets.

Triggers

Warsh’s confirmation stalls indefinitely
Powell remains as a governor and drives a split consensus, reducing the likelihood of meaningful policy shifts

2. The Soft Pivot

In this scenario, Warsh is confirmed timely and enough consensus exists to push for 2-3 rate cuts totaling 50bps to 75bps by year-end, bringing the target range down to 2.75% to 3.25%.

Similar to the status quo, the balance sheet remains stable with potential for modest expansion based on a continuation of existing policy measures. Asset purchases may shift towards longer duration Treasuries as a soft form of yield curve control. Changes in banking regulation and oversight play a more central role in policymaking in lieu of balance sheet maneuvers.

This is a constructive scenario for risk assets broadly. Equities are likely to rally on improved multiples due to reduced discount rates. Crypto benefits from the expansionary policy narrative, though gains are more measured relative to a full-on QE cycle. Warsh’s commitment to balance sheet discipline mutes upside absent crypto-specific catalysts.

Triggers

Warsh is confirmed to the US Federal Reserve Chairman role
Powell may remain as a governor, contingent on enough of a consensus willing to compromise in favor of a relatively more aggressive policy posture

3. Run It Hot

In this scenario, Warsh is confirmed and Powell steps down as Governor, creating another vacancy for President Trump to fill, potentially ahead of the midterm elections.

US Fed policy is more forward-looking and coordinated with the US Treasury, including taking quick action to reduce interest rates significantly over the next twelve months, combined with looser balance sheet policies while deregulatory efforts are underway.

The target US Fed Funds rate leans towards 3 rate cuts, or a target range of 2.75% to 3.00%. The US Fed explicitly shifts to a framework that is willing to risk short-term inflation above its long-term 2% goal if it meaningfully eases credit conditions for consumers and ensures ample liquidity to fund productivity growth, namely AI-related opportunities.

This scenario is broadly supportive of risk assets, though inflation-sensitive assets may see mixed results. These conditions are rocket fuel for equities and perhaps even more generous for crypto, which will likely rerate due to greater sensitivity to the liquidity narrative.

This scenario also comes with greater near-term volatility by triggering a credibility crisis for the US Fed if inflation reaccelerates.

Triggers

Powell steps down as Governor and his vacancy is quickly filled with an accommodative nominee
Warsh takes decisive action shortly after his confirmation, including early shifts away from reliance on lagging data indicators and changes in forward guidance. Meeting minutes reveal changes in deliberation.

What to watch

The next several months are rich with catalysts that will reveal which flavor of the scenarios listed above is most likely. The potential impact from regime shift at the US Federal Reserve is likely to influence the trajectory of risk assets, inclusive of crypto, for the foreseeable future and investors should pay close attention to the following events:

Upcoming nomination hearing for Kevin Warsh, now scheduled for Tuesday, April 21. Expect pointed questions on two fronts: his independence from the administration and his prior remarks on Federal Reserve policy. Pay particular attention to any confrontation of his prior public record and comments regarding his current philosophy concerning the balance sheet.
Announcements from the US Administration regarding their ongoing investigation. Currently, the US Administration is expected to appeal a judicial denial of subpoenas directed towards the US Federal Reserve, citing a lack of evidence of wrongdoing.
Assuming Warsh is confirmed in a timely fashion, the June FOMC press conference scheduled for June 17, 2026 represents the first opportunity for public discourse concerning the change in leadership and its impact on the FOMC’s policy agenda.
On May 6, 2026 the US Treasury will release its quarterly refunding decisions, which may provide insight into their management of the major refinancing operation this year. In particular, a decision to lean into short-duration issuance signals confidence in the near-term rate trajectory coming down.

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