Swan Song

This week’s Federal Reserve meeting was very likely the last time we will see Chair Jerome Powell behind the podium. His last press conference was on the same day the Senate Banking Committee approved Kevin Warsh as his replacement. The full Senate will likely vote in the next week or so.

This was, in effect, Powell’s swan song.

The Federal Open Market Committee (FOMC) left rates unchanged, although there were four voting members who disagreed with its statement, marking the most dissenters on a Fed decision since 1992.

Three of those dissenters had a hawkish bias and voted against language in the statement that suggested the committee would cut rates in the future. One dissenter with a dovish bias wanted to cut rates at the meeting. In other words, not only were there dissenting votes, but even the dissenters were divided.

Delayed Retirement

Despite this being Powell’s last press conference as chair, he confirmed that he will stay on as a governor after Warsh takes over. There had been speculation for some time about this (we saw it as a possibility as early as last summer). While it is not unprecedented, it is very rare. Powell admitted that he had hoped to retire after his chair term ended, but feels he has no choice but to stay until he is satisfied that the Justice Department’s investigation into the Fed is well and truly over.

To summarize, Warsh is taking over a FOMC that’s experiencing major dispersion, and will have the former chair as a voting member until further notice.

Just when you think things can’t get any more… eh… interesting, 2026 delivers another plot twist. At this point, I’d be surprised by hearing fewer surprises.

Inflated Uncertainty

Powell’s consistent message was that higher oil prices resulting from the war in the Middle East leave the outlook on inflation highly uncertain. He acknowledged that inflation would be pushed up in the near-term, but that it was nearly impossible to know what it may look like beyond that.

Another consistent message was that the committee largely believes the current monetary policy stance is appropriate. During the press conference, markets were pricing in no rate cuts for this year. As I’m writing this, they remain that way, but it’s worth noting that the bias did move slightly toward the possibility of a hike.

For what it’s worth, I do not see a hike coming in 2026. And barring recessionary signals, I believe that if we get any cuts, there will likely only be one because the inflation data won’t support more.

A New Chapter

You’ll notice there aren’t many charts in this week’s column. This is the end of one chapter and the beginning of another, which is a transition that can’t be charted.

As Warsh’s term begins, I expect a renewed focus on the intricacies of inflation as well as liquidity dynamics and the bond market’s reaction to it all.

I also expect the news flow to remain robust and investors to be on the edges of their seats for the foreseeable future. That is partly what makes a market. It’s also what makes maintaining a long-term investment view so challenging.

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