The End of an Era
What Happened
- The Final Act: Jerome Powell’s final FOMC meeting and press conference is scheduled for this Wednesday, April 29, 2026. This marks the end of an era defined by massive balance sheet expansion and Shadow QE.
- The Path Clears: Following the DOJ's announcement on Friday (April 24) that it is dropping the criminal investigation into Powell, the Senate hold has been lifted. Kevin Warsh is now expected to be confirmed by the Senate as the next Fed Chair by Wednesday evening.
- The Hawkish Dove Strategy: In his final hearings, Kevin Warsh confirmed a dual-mandate pivot: he supports lower interest rates to fuel an AI-driven productivity boom, but demands an aggressive shrinking of the Fed's balance sheet to remove market "distortions."
Why It Matters
With Jerome Powell in his final days as Fed Chairman we are seeing seeds planted for a significant regime shift in monetary policy. The "Powell Put" is ending and we don't know yet how Warsh will respond to natural market corrections. It's fair to say that Jerome Powell falls more inline with a Keynesian economist, which adheres to the belief that the government can/should intervene under market stressors. In other words, investors think "the S&P 500 is already down 15%, Powell should step in soon and slash rates to normalize everything". His successor, Kevin Warsh, falls much more inline with classical economic theory. Classical theory is much more laissez-faire approach. It adheres to the idea that the markets will do what they do, leave it alone.
What does this mean for interest rates? Warsh will likely begin cutting rates to the max extent possible. So will longer duration bonds go up? Unfortunately, no they won't. Warsh has stated that he wants to get the Fed out of the way by cutting rates, however he also wants to drastically shrink the Fed's balance sheet. The U.S. government is the largest holder of U.S. treasuries, Warsh aims to take the primary buyer out of the room. With longer duration bonds being more sensitive to QT, they will likely fall. We may end up with a "Bull Steepener" scenario where short duration bonds/cash perform well, while longer durations suffer. Here's a chart of this concept:
We are in the mists of a regime change in the Federal Reserve, and investors need to read the tea leaves and position for what may come next. We have made significant changes to our portfolio in light of this and our Gold Members have full access to those changes.
In Short
- Jerome Powell is leaving his position as Fed Chairman in May.
- Kevin Warsh is the most likely successor.
- Warsh has a "hands off" approach to the economy which is vastly different from Powell.
- We are entering a potential scenario where short-term bonds rise and long-term bonds suffer.
Thanks for reading! Until next time, good luck out there and Godspeed.
Disclaimer:
The views and opinions expressed in The Pioneer Perspective are those of Daniel Harlow and Pioneer Financial, LLC and are provided for informational and educational purposes only. Nothing in this publication constitutes financial, investment, tax, or legal advice.
Market data and information are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. Past performance is not indicative of future results, and all investments involve risk, including the potential loss of principal.
Readers are encouraged to conduct their own research or consult a qualified financial professional before making any investment decisions.
References:
Li, Y. (2019, February 8). The fate of the market could be in the hands of the 'Powell put'. CNBC. https://www.cnbc.com/2019/02/08/the-fate-of-the-market-could-be-in-the-hands-of-the-powell-put-.ht
Scott, G. (2024, May 22). Bull steepener: Definition, causes, and examples. Investopedia. https://www.investopedia.com/terms/b/bullsteepener.asp