Based on the nomination of Kevin Warsh (January 30, 2026) and President Trump’s executive strategy, the following shifts at the Federal Reserve are considered
virtually certain to happen: - A "New Operating Framework" for Interest Rates: Trump’s demand for lower rates is a cornerstone of his "A+++++" economy. While Warsh may not deliver the 1-2% rates Trump wants, he is destined to replace Jerome Powell’s "backward-looking" data approach with a model that prioritizes AI productivityas a justification for preemptive rate cuts.
- The End of "Mission Creep": It is a certainty that the Fed will be stripped of non-monetary mandates. Warsh has explicitly criticized the bank's involvement in climate change risk and social equity, and he will move immediately to align the Fed's focus strictly with price stability and deregulation.
- A Massive "Reset" of the Fed-Treasury Relationship: To address the national debt, a closer partnership with Treasury Secretary Scott Bessent is guaranteed. This "New Accord" will involve the Fed shifting its holdings to short-term T-bills, which lowers the government's immediate interest expenses—directly serving Trump’s fiscal goals.
- Aggressive Deregulation for "Main Street" Credit: Aligning with Trump's deregulatory executive orders, Warsh will ease capital requirements for banks (such as delaying or recalibrating Basel III rules). This is intended to force credit out of Wall Street and into the real economy (Main Street).
- Shrinking the Balance Sheet: Warsh has repeatedly called the Fed's $6.6 trillion balance sheet "bloated." He is destined to accelerate the runoff of these assets to signal a definitive end to "easy money" and to "create space" for the short-term rate cuts Trump demands.
The "Destined" Friction
While these structural changes are certain, a clash over the scale of rate cuts is also destined. If Warsh delivers only moderate cuts (e.g., to 3%) while Trump demands 1%, the same "public abuse" Trump directed at Powell is expected to repeat, especially if inflation remains sticky at 3%.
