Warsh’s Plan to Change the Fed

April 24, 2026

AI Summary

5 min read

In this episode of Thoughts on the Market, host Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley, analyzes Kevin Warsh's recent Senate testimony as President Trump's nominee for Federal Reserve chair. Amid geopolitical tensions from the Iran conflict and a surging investment boom, Sheets outlines Warsh's key views on productivity, inflation, and Fed reform, along with the challenges of implementing them.

Economic Dilemmas Facing the Fed

Financial markets are juggling multiple pressures: the Iran conflict disrupting global energy markets and pushing up oil prices, alongside accelerating corporate activity in mergers, capital spending, loan growth, and earnings. These create dilemmas for Fed policy. A further oil spike could drive inflation, prompting questions about whether to raise rates to combat it or cut them to support growth. Similarly, heightened corporate aggression raises overheating risks—should the Fed tighten by removing the "punch bowl," or cut rates if investments foster abundance and lower prices? Sheets notes these factors will test the next Fed chair, with Warsh's nomination adding a new layer as only the sixth person to hold the role since 1979.

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What you'll learn

1 (00:00) **Market Challenges: Energy Disruption vs. Investment Boom**
2 (00:47) **Fed Policy Dilemmas Amid Current Events**
3 (01:32) **Kevin Warsh's Nomination for Fed Chair**
4 (02:43) **Challenges Facing the Next Fed Chair**
5 (03:23) **Market Implications and Fed History**

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Show Notes

Kevin Warsh, President Trump’s nominee for the next Fed Chair, testified in front of the Senate earlier this week. Our Global Head of Fixed Income Research Andrew Sheets presents key takeaways from the two-and-half-hour testimony.

Read more insights from Morgan Stanley.

----- Transcript -----

Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.

Today on the program, a first look at potentially the next Fed chair.

It's Friday, April 24th at 9am in New York.

Financial markets can often struggle to keep track of more than one story at a time – and at present, we're really pushing the limit. At one end, the Iran conflict continues to create a historic disruption in global energy markets. At the other, signs of corporate animal spirits and activity hint at the potential for an even larger boom if this disruption ends.

Merger activity, capital spending, loan growth and earnings growth are all strong and accelerating. And so, into this mix enters a third story, the Federal Reserve. Indeed, both Iran and the investment boom introduce real questions as to how a central bank should react to these factors.

For example, if oil prices spike further, should the central bank raise interest rates to counter the inflation that would follow? Or should it lower them because that increase in oil prices could potentially hit growth? And what about corporate aggression? As that aggression increases, should the Fed look to raise interest rates and take away the punch bowl, so to speak, to avoid an even larger overheating in the economy? Or maybe all of this investment will create abundance – actually lower prices and warrant interest rate cuts.

These questions will weigh on the Fed and, in particular, Kevin Warsh, who has been nominated by President Trump to be the next chair of the Federal Reserve. This week saw Warsh testify in front of the Senate as part of that process, giving us the most detailed insight into his current thinking that we've had so far.

Two things really stood out. First, Warsh believes that this historic boom in AI and technology investment really is likely to boost productivity. A productivity boost, all else equal, should mean a greater supply of goods and services into the economy from the same number of workers; and thanks to that greater supply, relatively lower prices and less inflation. This belief in investment driven productivity underpins why he thinks interest rates can be lower even if current inflation is elevated.

Second, Warsh was critical of the Fed, stating that it had “lost its way,” from expanding its balance sheet too much to being too slow to reign in inflation following COVID. He outlined a sweeping agenda for change,