Fed Chair Warsh Wasn’t Here To Make Friends

Kevin Warsh's debut as Fed Chair did not get a market parade. The S&P 500 lost 1.24%, closing at 741.06. The Nasdaq 100 fell 1.01% to roughly 722.50. The Russell 2000 dropped 0.77% to 289.84. The Dow shed 505 points, or 0.97%, landing at 51,493.78.

The rate decision itself was a non-event. The Federal Open Market Committee voted unanimously to hold the federal funds rate at 3.5% to 3.75%. The statement kept the language on inflation as "elevated" and reiterated the need for "further progress" before any easing. The dot plot, however, shifted hawkish. The median projection for end-2026 moved up 25 basis points from the December summary. Two new dots suggested a rate hike before year-end.

Treasuries sold off on the projection shift. The two-year yield climbed 12 basis points to 4.03%. The ten-year yield rose 9 basis points to 4.47%. The curve steepened slightly as the long end underperformed. The dollar followed yields higher. The dollar index gained 0.6%, its best single-session move in three weeks. The euro dropped below 1.08. The yen weakened past 152.

Equities took the brunt because the hawkish tilt hit the rate-sensitive and growth-heavy names hardest. The QQQ's 1% decline masked a broader dispersion. Megacap tech fell 1.5% on average, with Microsoft and Amazon each losing more than 2%. Financials held up better, helped by rising yields. The SPY's AlphaScore sits at 38, a Mixed label. The QQQ's AlphaScore is 44, also Mixed. Both scores reflect the tension between elevated valuations and a tighter policy path.

The selloff broadened into commodities. Gold dropped 1.8% to $2,385, its biggest daily loss since early March. Crude oil fell 2.1% to $72.40 on the stronger dollar and demand concerns. Copper slipped 1.5%.

What changed was not the rate decision itself but the implied policy path. The market had priced in two cuts by December. After the dot plot, that expectation collapsed to one cut, with a 30% probability of no move at all, according to fed funds futures. Warsh's own views remain a source of uncertainty. In his confirmation hearing he stressed the need to "bring inflation down decisively," a phrase traders read as hawkish. The Gundlach piece from last week flagged exactly this risk.

The FOMC statement included a new line about "monitoring financial conditions closely" – a signal that the committee sees the recent equity rally as a headwind to its inflation fight. That line alone may have reinforced the selloff. Some on the Street read it as a warning that further tightening could come if markets keep pricing in premature cuts.

Trading volumes were above average, with 12.5 billion shares changing hands on NYSE and Nasdaq, versus the 20-day average of 10.8 billion. The put-call ratio on equity options jumped to 1.25, its highest since early January. The CBOE Volatility Index rose 2.3 points to 19.7, still low by historical standards but a clear uptick.

The next concrete marker is the release of the minutes, due in three weeks. Those will show the internal debate on the dot plot shift and whether any member dissented. The committee next meets in June, with a new press conference scheduled.