Futures Shift on Warsh Pick as Sentiment Tilts to Rate Hike

Client sentiment on the new Fed chair is already showing up in rates markets. A proprietary survey of AlphaScala’s institutional clients found roughly two out of three now expect the next Fed move to be a rate hike, not a cut. The same group gave Kevin Warsh a net-positive credibility score on his first day in the role, though several flagged the lack of a full Board as a structural risk.

Short-dated Treasury futures repriced lower in the two hours after Warsh’s swearing-in. The May 2026 fed funds contract now prices a 40% chance of a 25-basis-point hike by September, up from 25% at the start of the week. Positioning data from the CME shows funds and asset managers cut net long duration into the announcement, a shift one sell-side rates strategist described as “a rotation out of duration, not a full-scale bear steepening.”

That futures move matters for the rest of the curve. A steeper front end pushes higher yields into the two-year note, which then drags the belly of the curve. The 10-year yield rose 12 basis points Thursday, though more than half that move came before Warsh was sworn in. Traders said the real test comes with the March nonfarm payrolls and the March FOMC minutes, both of which would be the first data the new chair has to interpret live.

On the credibility question, the survey results were split. About 55% of clients rated Warsh’s credibility as “high” or “very high,” citing his academic background and his time as a Trump economic adviser. The remainder gave him “moderate” scores. Several clients noted that a former Goldman Sachs banker with a recent crypto-advocacy record would face immediate scrutiny from the progressive wing of the Senate Banking Committee during the full confirmation process.

The shift toward a hike view aligns with the repricing in eurodollar futures, which now imply a 60-basis-point total tightening by year-end, versus 35 basis points three weeks ago. That is a binary setup: if the next CPI print comes in at or below 0.2% month on month, the hike pricing could unwind quickly. A hot print would lock it in, traders said.