Kevin Warsh Awaits On Deck

With the World Cup absorbing much of the sporting world’s attention, and with New Yorkers still euphorically celebrating the Knicks’ NBA Championship, it may seem odd for me to lead with a baseball analogy.  Nonetheless, the baseball term that refers to the next player coming to bat is the best way for me to visualize Kevin Warsh approaching his first FOMC meeting and press conference as Chair.  Post-FOMC press conferences are always must-see TV, and this should be more required viewing than usual. 

It’s not clear that equity markets are fully focused yet on tomorrow’s FOMC.  Stock traders have been living in the moment for several months, as long as those moments offer plausible rationales, or even flimsy excuses, for further buying.  In recent days, there have been very tangible items upon which to fix their gazes – the memorandum of understanding regarding hostilities in the Persian Gulf, and a certain very well-received, high-profile IPO – but they would be remiss if they failed to fully consider the ramifications of a change in leadership at the world’s flagship central bank. 

Investors have legitimate questions about how Warsh will differ from Jerome Powell, who remains a Fed Governor and thus a voting member of the FOMC.  Powell approached press conferences in a deftly even-handed manner, leading us to refer to him on multiple occasions as “Goldilocks in a Suit.”  Although Warsh has years of experience of his own as a Fed Governor, his new role comes with far more prominence.  Global markets will be hinging on every one of his sentences this afternoon, and first impressions are quite important.

Bear in mind that Warsh comes to the job with a set of unusual expectations.  First and foremost, is he a hawk or a dove?  During his previous tenure at the Fed, Warsh was known as a hawk, especially when he pushed back against some of the monetary stimulus that was implemented in response to the Global Financial Crisis.  Yet he was nominated for the Chair by a President who has vocally pushed for interest rate cuts throughout his second term, so it is difficult to imagine that Warsh was able to obtain the nod without portraying at least some predilection for lower rates.  I expect questions about his recommended parameters for cuts and hikes.

Warsh has also indicated differences of opinion versus Powell when it comes to the size of the Fed’s balance sheet and his willingness to offer guidance, potentially including the Summary of Economic Projections (aka “SEP” or “dot plot”).  That has led some to speculate that today’s could be the last dot plot for some time, if not forever.  Few, if any, are expecting any rate action at this meeting – including traders on IBKR Prediction Markets who express near-certainty about no change – but there is greater uncertainty about whether language about an easing bias will be removed from the FOMC statement.  That said, there were four dissents at the last meeting – three over the easing bias – but IBKR Prediction Markets show a 70% “Yes” for zero dissents tomorrow.

Options traders might be inclined to pay close attention to tomorrow’s meeting and press conference, but they are not showing any particular concern about excess volatility or risk.   The IBKR Probability Lab shows peak probabilities only slightly above the current level for S&P 500 (SPX) options expiring tomorrow and Thursday (remember, US markets are closed Friday for the Juneteenth holiday, so we have a quarterly expiration on Thursday).  This contrasts with the more pronounced upside bias that prevailed in SPX options in recent weeks.

IBKR Probability Lab for SPX Options Expiring June 17, 2026

Source: Interactive Brokers

IBKR Probability Lab for SPX Options Expiring June 18, 2026

Source: Interactive Brokers

Skews on near-term SPX options are also relatively symmetrical; they too showed a pronounced upside bias, reflecting “FOMO Insurance” sought by institutional investors who might not have wanted to buy aggressively at current valuations but also did not want to risk missing a move.  At-money volatilities of roughly 1% are not showing significant expectations for increased post-FOMC volatility.

Skews for SPX Options Expiring June 17 (bright purple) and June 18, 2026 (muted purple)

Source: Interactive Brokers