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Markets Brace for a Potentially Turbulent Fed Transition
Mr. Kevin Warsh will formally be sworn in as the new Chairman of the Federal Reserve on Friday, 22 May.
According to the historical data shown in this chart, US equities have, on average, fallen by roughly 12% during the first three months following the appointment of a new Fed Chairman since 1930.
His appointment comes at a particularly delicate moment for financial markets. Inflation remains stubbornly elevated, bond yields are hovering close to multi-year highs, and investors are becoming increasingly skeptical that the Fed will be in any position to ease policy in the near future. Naturally, a change in Fed leadership is not, in itself, the direct cause of market selloffs. Rather, such transitions often coincide with broader turning points in the economic cycle, when markets are forced to reassess the cost of capital, the pricing of risk, and the likely trajectory of the economy itself. That is precisely why investors are currently reacting so nervously to bond yields, inflation data, and Federal Reserve rhetoric. Should Warsh adopt a firmer stance on inflation, market volatility could increase rather materially. Put simply, the coming months may genuinely require investors to keep both their nerves — and their seatbelts — firmly in place.Trade smart with Headway
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