Powell "Succession" Expectations Heat Up: Market Worries about Fed Independence Erosion, Rate Cut and Tapering Path Enters Turmoil

April 28th – Market divergence over Kevin Warsh’s potential policy direction as Federal Reserve chair has grown more pronounced following the conclusion of his nomination hearing, per a recent CNBC survey. The survey of 26 economists, strategists and analysts yielded these key findings: - 50% of respondents believe Warsh can maintain strong policy independence, while 46% see his independence as limited or nonexistent. This marks a 13-percentage-point jump in recognition of his independence from last month, signaling the hearing has eased some market concerns. - 58% view Warsh as leaning “dovish” overall, supportive of rate cuts. Yet 65% expect him to take a “hawkish” stance on balance sheet reduction, accelerating the Fed’s asset runoff. - 41% forecast Warsh could shrink the Fed’s ~$6.7 trillion balance sheet by ~$800 billion in his first year in office, while 46% say meaningful progress may be hard to achieve in the short term. Market focus centers on Warsh’s past comments about “realigning Treasury and Fed balance sheet management.” Analysts warn this could undermine the 1951 fiscal-monetary policy separation framework, weakening the Fed’s longstanding independence. On AI’s impact on inflation and productivity: Warsh advocates policy pre-positioning over waiting for data confirmation, but 81% of experts surveyed say the Fed should still base decisions on actual economic data. In the near term, AI’s potential long-term deflationary effects are not enough to justify a rapid shift to loose monetary policy.