For the better part of the last seven years, Wall Street’s major stock indexes have been unstoppable. The broad-based S&P 500 (^GSPC +0.29%) has rallied at least 16% in six of the last seven years, while the iconic Dow Jones Industrial Average (^DJI 0.31%) and technology-driven Nasdaq Composite (^IXIC +0.89%) have reached psychologically important levels of 50,000 and 24,000, respectively.
Although the annualized return of stocks is unrivaled over the very long term, compared to other asset classes, getting from Point A to B is typically an adventure for investors. Thanks to an impending shift at America’s foremost financial institution, the Federal Reserve, the stock market may be readying for one of its wildest rides yet.
May 15 will mark Jerome Powell’s final day as Fed chair. Image source: Official Federal Reserve Photo.
Fed chair nominee Kevin Warsh aims to change the central bank’s narrative
May 15 marks the final day Jerome Powell will serve as head of the Fed.
The end of his tenure has been well telegraphed for a year, thanks to an ongoing public feud with President Donald Trump over interest rates. Whereas Trump has repeatedly called on Powell and the other members of the Federal Open Market Committee (FOMC) to aggressively cut interest rates to 1% (or below), Powell has been steadfast in the idea that economic data will guide the FOMC’s policy decisions.
Assuming U.S. Senate confirmation, it’ll also mark the beginning of the road for Kevin Warsh, whom Trump nominated to succeed Powell as Fed chair. Although Warsh brings five years of experience to the position — he served on the Board of Governors of the Federal Reserve from Feb. 24, 2006, to March 31, 2011 — he aims to change the central bank’s narrative, to the detriment of the stock market.
Kevin Warsh Nomination: one reason why market players are interpreting it as a hawkish pick- I agree-is because of his views on the need for a radical balance sheet reduction.
The $31 trillion-dollar American economy demands liquidity & financing needs that are larger than what… pic.twitter.com/zYunGAItV8
— Joseph Brusuelas (@joebrusuelas) January 30, 2026
For starters, Warsh has been a vocal critic of the Fed’s bloated balance sheet. Between August 2008 and March 2022, the central bank’s total assets ballooned tenfold, from just shy of $900 billion to almost $9 trillion. Though a quantitative tightening cycle modestly lowered this figure to $6.7 trillion, Warsh has been clear that he wants to see the Fed deleverage its balance sheet and become a more passive market participant.
Regardless of whether shrinking the Fed’s balance sheet is the right or wrong move, selling trillions of dollars in long-term U.S. Treasury bonds and mortgage-backed securities would have potentially deleterious consequences for Wall Street. It would likely drive bond prices down and yields up, thereby increasing borrowing costs.
Additionally, Kevin Warsh was viewed as a hawk during his five years as a voting member of the FOMC. Even as the unemployment rate soared during the financial crisis, Warsh remained overly focused on inflation and price stability.
His track record suggests that he’ll favor higher interest rates over longer periods to suppress inflation. That’s not good news for a pricey stock market that’s been counting on additional interest rate cuts. It may also pit the presumed next Fed chair against the outspoken Trump.
Image source: Getty Images.
Historic FOMC dissent and a potential loss of credibility await
However, Kevin Warsh’s ideology is just one-half of the double whammy that awaits the stock market come May 15. When Powell steps down as Fed chair and Warsh, presumably, takes the reins, he’ll be navigating a period of historic dissension within the FOMC.
Spanning the totality of Powell’s two terms as Fed chair, he had one of the lowest rates of dissent since 1978. But the final seven FOMC meetings of his tenure have been marked by clear ideological differences.
For example, the FOMC’s October and December meetings featured dissents in opposite policy directions. Stephen Miran favored aggressive federal funds target rate cuts of 50 basis points at both meetings, rather than the 25-basis-point reductions that were ultimately passed along. Meanwhile, at least one FOMC member pushed for no cut to the federal funds target rate at both meetings.
There have only been three FOMC meetings since 1990 that have featured dissents in opposite directions, and two of them have occurred since late October.
NEW: There were *four* dissents on the Fed’s rate pause.
Three bank presidents wanted to ditch the easing bias, and a governor dissented for a rate cut.
The last meeting with four dissents was in 1992. pic.twitter.com/JM88jOXIAg
— Nick Timiraos (@NickTimiraos) April 29, 2026
To add fuel to the fire, Powell’s final FOMC meeting as Fed chair on April 29 led to a first-in-34-year moment, with four dissents. Although the FOMC left rates unchanged, Miran dissented in favor of a quarter-point cut to the federal funds target rate, while Beth Hammack, Neek Kashkari, and Lorie Logan supported maintaining the existing federal funds range but were opposed to the inclusion of an easing bias in the FOMC statement.
In other words, a quarter of the FOMC is no longer supportive of the central bank’s rate-easing cycle, which began in September 2024.
When Warsh takes the helm, he’ll be inheriting perhaps the most divided FOMC in history. He’ll also be tasked with guiding this diverse set of opinions through two inflationary shocks: the presumed tail-end of President Trump’s tariffs and the Iran war, which has no defined end date.
Investors have historically given the FOMC leeway to be late or even wrong with its monetary policy decisions, as long as all voting members are on the same page. The division we’re witnessing at the FOMC right now threatens the very credibility of America’s premier financial institution, and may upend a multiyear rally for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.
