Most important take away

The Fed’s reaction function — the implicit rules markets have priced off of for two decades — is becoming less reliable. With Powell stepping down as chair but staying on the board (the first since Eccles in 1948), Kevin Warsh likely to be confirmed with a “regime change” agenda, a more openly divided FOMC, and ongoing political pressure on the institution, bankers and investors should plan for a noisier policy signal, a longer-for-higher rate environment, and weaker near-term odds of rate cuts despite the administration’s pressure.

Summary

Actionable insights and investment-related guidance for bankers and investors:

Rates and loan/deposit positioning

• Don’t plan for near-term rate cuts. There is “just no way to argue for a cut at the June meeting.” The path to rate cuts in 2026 is narrow: cuts now require either a meaningfully weaker labor market and stalling growth, or a credible disinflation pickup. Neither is currently in evidence.
• Longer-for-higher (and possibly higher still) is the base case. Bankers planning loan books, deposit pricing, and hedging should assume the easing bias may not survive much longer and that the next “live” debate inside the Fed will shift toward whether to hike, not cut.
• Watch for the moment the FOMC drops “additional adjustments” / easing-bias language from the statement — that’s the hawkish signal markets will price.
• The Fed’s estimated long-run neutral rate has crept higher (now around 3%, with some attribute it to higher deficits or AI-driven investment). If neutral is higher, less restrictive policy than thought means fewer “good-news cuts” available.

Inflation and macro

• Inflation will likely not return to 2% on the Fed’s promised timeline. Sequential shocks (tariffs, AI build-out pushing memory/copper/turbine prices, and the Iran/Strait of Hormuz energy shock) are accumulating.
• Powell’s framework — look-through energy shocks only if the tariff shock is fading and goods inflation returns toward zero — is at risk if PCE core goods inflation stays elevated.
• The “scariest” outcome for the Fed: adaptive inflation expectations form around 3% as the new 2%.

Investment implications (not specific tickers, but structural)

• Bank net interest margins and securities portfolios should be planned around continued higher rates and high uncertainty rather than a near-term easing cycle.
• The political signal-to-noise ratio is going to be a bigger part of what investors must filter; Fed Speaker dispersion will likely grow.
• If Warsh pulls back on press conferences (as he reportedly prefers), the FOMC statement and individual regional Fed presidents’ speeches in the post-blackout window will carry more weight — bank treasurers and portfolio managers should re-tool how they consume Fed signaling.

Institutional risk

• Powell staying on the board acts as a “heat shield”: as long as he is on the seven-member board, Trump cannot get a working majority to potentially fire regional Fed presidents.
• A DOJ OLC opinion from 2018–19 confirmed regional presidents are “inferior officers” removable only by a majority vote of the Board of Governors. Governor Chris Waller has already said he won’t support firing reserve bank presidents over policy disputes.
• Worsh’s first task: establish that decisions are grounded in economics, not in the conditions under which he was nominated (after Trump explicitly demanded a chair who would cut rates).

Crypto / stablecoin policy (closing news segment)

• The American Bankers Association is pushing members to lobby their senators against a stablecoin/crypto market structure bill ahead of a Thursday Senate Banking Committee vote. ABA argues the Tillis–Brooks compromise on stablecoins paying yield is insufficient. Senate path is uncertain (Kennedy still opposed, Democratic support uncertain). Bank investors should watch this closely as it directly affects deposit competition.

Other notable specifics

• Three FOMC dissents at the April meeting over statement language, not over the rate action — historically unusual (dissents over words only previously occurred when the policy rate was pinned at zero).
• Recent regional Fed appointments not from their districts (Lorie Logan at Dallas Fed; Beth Hammack at Cleveland Fed; an unnamed St. Louis Fed appointee with Wall Street background) are being used as a political angle by Treasury Secretary Vess to question reserve bank president legitimacy.
• Timiraos suggests doves in 2026 will likely shift to “let’s not hike” rather than arguing for cuts they can’t get.

Chapter Summaries

• Why this is a turning point: Powell stepping down but staying on the board (first since Eccles 1948), Warsh promising “regime change,” more openly divided committee, and an administration using DOJ, Treasury, and the bully pulpit to pressure the Fed.
• Why Powell stayed: The DOJ criminal probe over building renovation costs convinced him the institution needed his physical presence as a “heat shield” — staying denies Trump a working majority on the board.
• Threats to regional Fed presidents: Legally removable only by a majority Board vote (per 2018–19 DOJ opinion). Waller has publicly said he won’t fire presidents over policy disputes. Treasury Sec. Vess is questioning the legitimacy of recent regional appointees not from their districts.
• The April FOMC’s unusual dissents: Three dissents over the statement’s easing-bias language (“additional adjustments”). This is historically rare outside the zero-bound era and signals a deeper split over the next 3+ months of policy.
• Mixed-signals problem: Fed is holding rates steady while still signaling easing bias even as inflation risks rise. Powell defended on process; Timiraos suggests the substantive case for keeping the bias is weak.
• Warsh’s box: Trump wants cuts. There’s no economic case for a June cut. Doves will pivot to “don’t hike” arguments. Warsh hasn’t spoken publicly on the outlook since his confirmation hearing.
• Rate outlook for bankers: 2024–25 cuts were “good news cuts” from clearly restrictive levels. With neutral now near 3% and inflation sticky, the runway for good-news cuts is gone. Two paths: meaningfully weaker labor market or just stay at neutral indefinitely.
• Multiple simultaneous shocks: Pandemic aftershocks, tariffs, Iran-related energy disruption (Strait of Hormuz), and AI build-out cost pressures. Sequential shocks make “look-through” doctrine harder to sustain.
• Restrictiveness reassessment: If neutral has drifted higher (deficits, AI investment), policy may not be as restrictive as Powell assumed. Adaptive inflation expectations at 3% would be the worst outcome.
• “Messier meetings”: Warsh wants more open dissent, possibly fewer press conferences. Trade-off: more transparency cost vs. weaker policy signal. Larry Summers has long argued for less Fed guidance, but losing the press conference also weakens the chair’s institutional power.
• End of the chair-driven Fed? The Greenspan-Bernanke-Yellen-Powell model of consolidating authority in the chair via communication apparatus may be rolled back. Structural divisions on the committee make the chair “first among equals” rather than dominant.
• Warsh’s first move: Establish that decisions are grounded in economics, not the political conditions of his nomination.
• Will Powell leave when calm returns? Probably not soon — Trump doesn’t change, Powell set a higher bar than just the legal matters being closed. Warsh may have a better personal relationship with Trump than Powell did, which could matter.
• Stablecoin/crypto bill news: ABA lobbying against Tillis–Brooks stablecoin yield compromise ahead of Thursday Senate Banking Committee vote; full Senate passage looks unlikely without further dealmaking.