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The Hawk Trump Nominated
At 10 o’clock this morning, Kevin Warsh sits down in front of the Senate Banking Committee for the most consequential Fed confirmation hearing since Paul Volcker’s in 1979. The market has priced the outcome the way Trump has framed it: a new chair means lower rates, and lower rates mean the rally keeps running. Warsh’s prepared remarks, published by Politico yesterday, tell a different story.
Read the text and count the references. Inflation appears throughout. The labor market appears once. Fed “independence” gets more airtime than any specific policy direction. And the line that should stop any rate-cut bull in his tracks: “The Fed must stay in its lane.”
What the market is pricing. The S&P 500 closed Monday at 7,109.14, down 0.24% on the Iran re-escalation. Forward P/E is still near 21 per Schwab’s Monday morning note. That multiple assumes a policy mix: earnings growth holding near 20%, rate cuts arriving in 2026, and the Fed cutting aggressively enough to offset any oil-driven inflation second wave. Fed funds futures as of Monday afternoon priced a 68% chance of at least one cut before year-end. The number embedded in the multiple is bigger than that. It assumes the cuts arrive, oil settles back toward $70, and the new Fed chair accelerates what Powell has slow-walked.
What Warsh’s words actually commit to. Every Fed nominee talks about inflation. But the emphasis — what gets said repeatedly, what gets said once, what doesn’t get said at all — is the real signal. Warsh’s prepared testimony frames the Fed’s mandate through a price-stability lens first and a labor lens almost as an afterthought. In pre-nomination speeches, Warsh criticized the central bank for “forecasting stagflation” and argued AI productivity gains would bring inflation down on their own — a view that could justify cuts. But that argument rested on inflation cooperating. With WTI up 24% over six weeks and the Strait of Hormuz re-closed as of this morning, the inflation side of the equation isn’t cooperating.
The math on confirmation itself. Republicans hold an eleven-to-ten majority on the Senate Banking Committee. Senator Thom Tillis has vowed to vote no until DOJ drops its investigation into Powell’s Fed-building-renovation testimony. DC US Attorney Jeanine Pirro has said publicly she won’t drop it. Powell’s term expires May 15. If Warsh isn’t confirmed by then, Powell stays as chair pro tempore — exactly the outcome Trump spent a year trying to prevent. The market is priced for a smooth handoff. The calendar doesn’t guarantee one.
What that does to the money. Every long-duration asset in a typical $800K portfolio — growth stocks, long bonds, small-caps on margin — is priced off the assumption that rate cuts are coming soon. If Warsh sits under oath today and signals inflation-first, rate-cut-later, the 68% probability of a 2026 cut priced into Fed funds futures compresses. Even a 10-point probability shift repriced across the curve is a real move in long-dated bonds and interest-rate-sensitive equities. The position isn’t about Warsh. The position is: what does the portfolio own right now that assumes the cuts are coming?
Three things to watch during the hearing.
1. The labor mentions. Warsh’s prepared remarks contain one. How many times he brings up employment unprompted in response to senator questions tells you which half of the dual mandate he actually weights.
2. The oil answer. Someone will ask directly: does the Iran war change your view on near-term cuts? The honest answer is yes. The political answer is no. Which one Warsh gives matters more than anything else he says today.
3. The Tillis moment. Tillis said last week he’d use his five minutes to talk about the Powell investigation, not Warsh’s credentials. If the senator signals any softening — or if another Republican shows cracks — the confirmation-by-May-15 timeline becomes a serious market variable.
Trump nominated Warsh expecting him to deliver cuts. Warsh’s prepared remarks read like an inflation hawk. The market is positioned for the first outcome. The testimony starts in a few hours.
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