Fed Meeting: Key Questions As Powell Passes Torch To Warsh

• At the March 18 meeting, Stephen Miran was the only FOMC member to dissent and favor a quarter-point rate cut; Miran would step down when Warsh joins
• Warsh has criticized Fed's data-dependent approach and $7 trillion balance sheet, advocating for focus on AI-driven productivity gains that could allow faster growth without inflation
• Warsh faces trade-off between lower rates and smaller balance sheet: reducing Fed asset holdings would increase market supply, potentially raising long-term Treasury yields and federal borrowing costs

Summary: Fed Meeting and Powell's Final Session

Key Development: Federal Reserve Chairman Jerome Powell presides over his final rate-setting meeting, with a policy statement due at 2 p.m. ET and press conference at 2:30 p.m. ET. The critical question is whether Powell will serve out his Fed governor term through February 2028, which impacts President Trump's ability to appoint additional dovish FOMC members.

Leadership Transition: Kevin Warsh, Trump's nominee to replace Powell as Fed Chair, awaits Senate Banking Committee advancement (expected Wednesday). Unless Powell exits entirely, Warsh's entry means current Fed Governor Stephen Miran will step down. Miran was the sole dissenter at the March 18 meeting, favoring a quarter-point rate cut.

Market Conditions:

• S&P 500 futures edged higher
• U.S. crude oil prices rose to approximately $103/barrel amid U.S.-Iran tensions and Strait of Hormuz closure
• Markets see only 13% odds of rate cuts this year, down from 27% a week ago
• Major tech earnings expected after close: Alphabet, Amazon, Meta, and Microsoft

Warsh's Policy Stance: The incoming Fed Chair has criticized data dependency, quarterly forecasts, and the Fed's ~$7 trillion balance sheet in Treasury and mortgage securities. He advocates for productivity-driven growth allowing lower rates without inflation, though economist Ed Yardeni disputes this during economic booms.

Policy Implications: Warsh prioritizes balance sheet reduction, though this could push up long-term rates and federal borrowing costs. Any significant changes face resistance given five years of above-target inflation, with reform likely a longer-term project requiring Treasury Department coordination.