Hey there, it’s Hirokichi!
In May 2026, the top spot at the Federal Reserve (the Fed, America’s central bank) changed hands for the first time in eight years. Jerome Powell stepped down as chair after his term expired, and Kevin Warsh — nominated by President Trump — was confirmed by the Senate as the 16th chair of the Federal Reserve.
For investors, a change in Fed leadership is one of the biggest events on the calendar. The Fed sets U.S. interest rates, and U.S. interest rates move global stocks, bonds, and currencies — including the dollar-yen rate that matters a lot to Japanese investors. Let me break down Powell’s eight-year run and what to watch under the new Warsh era.
Jerome Powell’s Legacy: Eight Years at the Helm
Powell took office as the 15th Fed chair in 2018 and served until his term expired in May 2026. Those eight years were packed with historic events.
His biggest achievement is widely seen as his response to the COVID-19 economic crisis. When the pandemic hit in 2020, Powell moved quickly to slash rates to zero and launch massive asset purchases (quantitative easing — buying bonds to inject money into the financial system). This decisive action helped prevent a full-scale financial system collapse and is credited with keeping the global economy from spiraling into something much worse than the 2008 financial crisis.
On the downside, Powell initially described the post-COVID inflation surge as “transitory” — a misjudgment that delayed the Fed’s response and led to a painful period of rapid rate hikes in 2022-2023. Critics said the Fed was “behind the curve.”
That said, the ultimate outcome was a near “soft landing” — inflation came down substantially without a major spike in unemployment, which many economists had thought was near-impossible given how fast and how high rates rose. Powell also earned praise for defending Fed independence against repeated pressure from President Trump to cut rates faster. The JFK Library Foundation awarded him a “Profile in Courage” award for standing firm.
Why Did Trump Want Someone New?
Trump’s frustration with Powell goes back to the first Trump administration (2017-2021), when he repeatedly pushed for rate cuts and was repeatedly rebuffed. In the second Trump administration (2025-), that frustration continued.
With Powell’s term expiring in May 2026, Trump saw the opportunity to install someone more aligned with his economic agenda — particularly his desire for lower interest rates. Kevin Warsh became that choice.
Who Is Kevin Warsh?
Kevin Warsh was born in 1970 in New York. He graduated from Stanford University and earned his JD from Harvard Law School. After seven years at Morgan Stanley, he joined the George W. Bush administration and in 2006 became a Fed governor at just 35 — the youngest person ever to hold that role at the time.
After leaving the Fed in 2011, Warsh served as a senior fellow at Stanford’s Hoover Institution. In terms of policy stance, Warsh is generally viewed as hawkish (preferring tighter monetary policy to keep inflation in check), though he has shown flexibility — at times supporting rate cuts when economic productivity data justified it.
How Might Fed Policy Change Under Warsh?
Two of Warsh’s biggest policy ideas stand out:
- Abolishing forward guidance: Forward guidance — the Fed’s practice of signaling where rates are headed in the future — was introduced after the 2008 financial crisis to give markets clarity. Warsh wants to end this and return to a meeting-by-meeting, data-driven approach. This could make markets harder to predict, potentially adding volatility (price swings) to stocks and bonds.
- Shrinking the Fed’s balance sheet: The Fed currently holds roughly $7 trillion in bonds and other assets. Warsh has publicly stated his intention to reduce this. A shrinking balance sheet means less money flowing through the financial system, which could create headwinds for stock markets.
Warsh also wants to replace the average inflation targeting framework (which allowed inflation to run above 2% for a while without triggering rate hikes) with a stricter approach. This means the Fed under Warsh could be quicker to raise rates if inflation picks up again.
What Should Investors Watch?
Here are the key things to keep an eye on as the Warsh era gets underway:
- FOMC statements and press conferences: Warsh chaired his first FOMC (Federal Open Market Committee — the group that sets U.S. interest rates) meeting on June 16-17, 2026. Every meeting going forward will be a key signal for market direction.
- Timing and scale of rate cuts: Trump wants cuts; Warsh may not rush. Inflation data (CPI, PCE) and the monthly jobs report will be the key inputs to watch.
- Fed independence: Powell fought to keep the Fed independent from political pressure. Warsh has a closer relationship with the current administration. Whether that independence is maintained will matter a lot for long-term market trust in the Fed.
- Impact on the yen and Japanese markets: U.S. rate decisions drive the dollar-yen exchange rate, which in turn affects the Nikkei and Japanese corporate earnings. Tracking each FOMC outcome carefully is important for Japanese investors.
Summary
The Fed’s change of leadership is one of the most important events in global finance. Powell leaves with a mixed but broadly positive legacy — praised for his COVID crisis response and defense of Fed independence, and criticized for initially misjudging inflation. His successor, Kevin Warsh, comes in with a more hawkish, data-dependent approach and plans to unwind some of the monetary framework Powell put in place.
For investors, this is a period of transition and uncertainty. Rather than rushing to react, I think the best approach is to keep a close eye on FOMC meetings and inflation data, and make decisions calmly at your own pace.
Let’s keep at it, slow and steady. See you next time!
* This article is for informational purposes only and is not investment advice. Please invest at your own responsibility.
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