Kevin Warsh, nominated by US President Donald Trump to be Chair of the Federal Reserve, has been approved by the US Senate Banking Committee. The committee vote was 13-11, with Republicans outnumbering Democrats.
Warsh now faces a confirmation vote by the full US Senate. If confirmed, he would replace Federal Reserve Chair Jerome Powell when Powell’s term ends on 15 May.
Warsh Nomination And Market Volatility
US Senator Elizabeth Warren opposed the move and said, “A vote to advance Warsh is a vote to help Donald Trump take over the Fed.”
With Kevin Warsh now one step closer to leading the Fed, we must prepare for a significant increase in market volatility. Warsh is widely viewed as being more hawkish than Powell, meaning he may be quicker to raise interest rates to fight inflation. The VIX, a key measure of market fear, has already crept up to 18.5 this week, and we should consider buying protection as his full confirmation vote approaches.
The bond market is already reacting to this potential leadership change, which comes right after the latest March 2026 CPI report showed inflation is still sticky at 3.1%. The two-year Treasury yield, highly sensitive to Fed policy, has jumped 15 basis points to 4.85% since the committee vote was announced. We are positioning for this trend to continue by looking at options on interest rate futures that would profit from a more aggressive Fed policy through the summer.
We remember the market whiplash in late 2025 when unexpected inflation data forced the Fed to walk back its dovish guidance. A similar environment of uncertainty is now upon us, but this time it is driven by a potential change in leadership philosophy. Historically, markets react poorly to unpredictable Fed policy, as seen during the sharp sell-offs in 2018 when the Fed was aggressively tightening.
Positioning Ahead Of The May Deadline
Given the May 15 deadline for Powell’s term ending, implied volatility on equity index options expiring in late May and June is becoming expensive. We are seeing a notable rise in skew, as demand for downside puts on the S&P 500 far outpaces calls. Traders should review their portfolios for downside risk, as a Warsh-led Fed could prioritize fighting inflation over supporting asset prices.
