Wall Street Braces for Volatility as Kevin Warsh Takes the Fed Helm

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•  09 Feb 2026
 

Wall Street digests the news of Kevin Warsh nomination as the next Federal Reserve chairman. The announcement by President Donald Trump immediately sparked market jitters, reflecting a blend of uncertainty and caution. Traders are asking whether Warsh will act swiftly to cut interest rates, and more importantly, whether the Fed independence could be at risk under political pressure.

Historical data paints a clear pattern: a new Fed chair often coincides with turbulence in the markets. Barclays’ research shows that the S&P 500 tends to drop an average of 16% within six months of a new chair assuming office. Short-term movements are equally telling, with a 5% decline typically seen in the first month and around 12% within three months. These declines exceed average market behavior in a random year, highlighting how a leadership change can serve as a trigger for volatility. Past examples reinforce this trend. When Jerome Powell stepped in during February 2018, the market fell roughly 10% amid inflation worries and rising interest rates. Similarly, under Ben Bernanke in 2006, stocks dipped around 8% in three months due to tightening concerns.

Kevin Warsh is no stranger to the Fed. Serving on the Board of Governors from 2006 to 2011, he earned a reputation as a cautious voice favoring monetary restraint. The market reacted sharply to his nomination because his stance appeared less dovish than other potential candidates. While Warsh has recently aligned more with Trump push for lower rates and a smaller Fed balance sheet, investors remain unsure about his precise policy direction.

The timing of Warsh appointment adds another layer of complexity. Inflation remains elevated, with the latest figures around 3.2%, while signs of a cooling labor market like a slowdown in new job creation to 150,000 last month signal that the Fed is walking a tightrope. These conditions, coupled with a change in leadership, amplify uncertainty and create a high-stakes environment for the markets.

Independence is another key concern. Trump frequently criticized outgoing Chair Powell questioning the Fed approach to economic growth. Warsh nomination raises questions about potential political influence. Even subtle pressure on monetary policy can ripple across asset prices, affecting equities, bonds, interest rate curves, and investor confidence.

The Fed balance sheet is also under scrutiny. Warsh has signaled a preference for reducing the central bank holdings, which would drain liquidity from the financial system. While technically routine, accelerated balance sheet reductions can weigh on risk assets, especially during an already fragile economic period. This approach could strengthen the dollar and temper gold and silver prices in the short term, reflecting market expectations for tighter monetary conditions. Historically, similar moves, such as Alan Greenspan early tightening in 1987, triggered short-term declines but eventually supported long-term market recovery.

Precious metals reacted immediately after the announcement, with gold and silver falling as the dollar surged, signaling expectations for less expansive monetary policy. Yet, if Warsh moves toward faster rate cuts, these metals could rebound, showing how sensitive markets are to policy shifts.

The Senate role adds another element of uncertainty. While Warsh is likely to be confirmed, political debates and procedural delays could extend market unease through May. Republican senators are scrutinizing Powell tenure, and any prolonged review could heighten short-term volatility for SPX and related indices.

Warsh entry into the Fed comes at a tense moment. Historical patterns suggest that the first months under a new Fed chair are rarely smooth, with market swings that test investor confidence. Traders and investors are pricing in higher risk, reflected in a spike in the VIX to around 25, signaling expectations for near-term turbulence. Whether Warsh will steer the market toward calm waters or turbulence remains to be seen, but one thing is certain: Wall Street will be watching every move closely.

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