Kevin Warsh became the 17th Chair of the Federal Reserve System on May 22. After the Senate vote, he replaced Jerome Powell and faced a far from easy start: inflation remains high, the Fed’s balance sheet is inflated to $6.7 trillion, and the crypto market is reacting more strongly to any signals from the regulator.
Warsh has experience on the Fed board, served in the Bush administration, and has a background on Wall Street. That’s why the market immediately began to expect a tougher approach to rates and less willingness to constantly rescue the economy with cheap money.
Traders and investors are now closely watching how much the new Fed chair will change the regulator’s course.
1. Warsh Has Long Advocated for a Hawkish Policy
Warsh has been criticizing the Fed’s policy since the 2008 crisis. In his view, the regulator has grown too large and has been intervening too actively in the economy.
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In 2011, he left the Fed after disputes over another round of quantitative easing.
Since then, Warsh has consistently called for reducing the Fed’s balance sheet, keeping inflation under control, and moving away from constant market support.
Now, his views are once again in the spotlight.
The Fed’s rate is in the 3.50–3.75% range, and March inflation rose to 3.3% amid a spike in oil prices due to the conflict around Iran.
At the same time, Fed officials in their March forecasts project only one rate cut in 2026.
Fed interest rate forecast. Source: CME FedWatch Tool.
During Senate hearings, Warsh stated directly that the inflation problem did not arise by accident.
According to him, the Fed waited too long to react, and when inflation becomes entrenched in the economy, it becomes much harder to fight.
He also made it clear that the mistakes of past years are still weighing on the economy, and the Fed itself needs a different approach to monetary policy.
The market quickly interpreted this as a signal for a tougher course and further reduction of the Fed’s balance sheet instead of a quick move to rate cuts.
2. Warsh Is Much More Relaxed About Bitcoin Than Powell
Compared to previous Fed chairs, Warsh appears noticeably more open to the crypto market.
Trump’s candidate for Fed chair previously called bitcoin a store of value, opposed a digital dollar for the public, and said that cryptocurrencies have already become part of the American financial system.
According to his financial disclosure, Warsh himself is also seriously involved in the digital asset market. His crypto investments are valued at over $100 million.
His portfolio includes investments in layer-1 blockchains, DeFi projects, and bitcoin payment infrastructure. Because of this, the market is in a strange situation.
On one hand, high rates usually hit risk assets.
On the other, a Fed chair who doesn’t treat bitcoin as something marginal changes the overall sentiment around the crypto market.
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After the January peak, bitcoin has already dropped amid tougher rate expectations. Now the market is living between fear of further tightening by the Fed and hope for a more relaxed regulatory approach to crypto.
Bitcoin price dynamics after the January peak. Source: CoinMarketCap.
3. Warsh Wants to Change the Fed’s Entire Style of Work
The new Fed chair has already hinted that he intends to change not only policy, but also the way the regulator communicates with the market.
Among the ideas he is discussing:
- ending regular press conferences after meetings;
- fewer advance signals about rates;
- a new approach to controlling inflation.
For markets, this means one thing: the Fed could become much less predictable.
In recent years, investors have gotten used to constant hints from the regulator. Any comments from Fed officials immediately affected the market. Warsh clearly does not like this style.
It seems he wants to make the Fed more closed and less talkative, so the market relies less on hints and officials’ comments.
The gap between U.S. 10-year Treasury yields and inflation is widening again. Source: MarketRebels/X.
This approach could well increase market nervousness, especially in the coming months.
But Warsh himself believes that this is exactly how the Fed can regain trust after the episode with “transitory” inflation, which the market eventually stopped believing in.
During the handover of powers, Warsh specifically emphasized that he does not intend to be anyone’s puppet. Many saw this as a direct response to pressure from Trump, who has long demanded rate cuts.
The first real test for the new Fed chair is the upcoming FOMC meeting.
Only after that will it become clearer how ready Warsh really is to change the regulator’s course and how far he is willing to go with his tougher policy.
