April 22, 2026
MEMORANDUM
TO: Anyone still pretending the Federal Reserve is a normal institution
FROM: The situation
RE: Yesterday
Kevin Warsh sat before the Senate Banking Committee on Tuesday and was asked, with a straight face, whether he would serve as President Trump's "human sock puppet." The phrase belonged to Sen. John Kennedy of Louisiana — a man not typically associated with institutional solemnity — and Warsh answered that he absolutely would not. "Absolutely not," in fact. Verbatim.
Somewhere, in the temperature-controlled marble of the Eccles Building, Jerome Powell's portrait is already halfway off the wall.
Let's take stock of the tableau. The United States is at war in the Middle East. A two-week ceasefire expires tonight. Brent crude is orbiting $96. Gas is $4.05 at the pump. Inflation is running at 3.3% annually. And the Senate Banking Committee spent a meaningful portion of yesterday afternoon interrogating the next Federal Reserve chair about Seinfeld references and a $100 million in undisclosed investments and whether a federal criminal probe into the current chair — ostensibly about a building renovation — should be dropped before anybody votes on anything.
This is the institution tasked with price stability for the largest economy on earth. Carry that thought with you.
The Warsh hearing was, by the standards of Fed confirmation theater, genuinely unusual. These proceedings are typically the financial equivalent of a dental cleaning: mildly uncomfortable, entirely predictable, over in two hours. Not this one. Sen. Elizabeth Warren arrived with the energy of someone who had not slept, and she deployed it. Democrats hammered Warsh on conflicts of interest. They hammered him on his long history of inflation hawkishness — the dissent against QE in 2010, the years spent warning about asset price distortions from loose money — and then, in the same breath, hammered him for reversing that position at a conveniently useful moment.
The reversal is the thing. Warsh spent most of the last decade as a credible hawk. Now Trump wants low rates, and Warsh, nominated by Trump, told the committee that the inflation trajectory is "improving, but there's more work to do" — which is the kind of sentence that commits you to absolutely nothing while sounding like it commits you to something. He said no rate-cut deal was made with the White House. He said central bank independence is "essential." He said he would not be a sock puppet.
Markets, being markets, did not find this entirely convincing. Gold was down 3% on Tuesday at $4,676 an ounce — the Warsh effect, still trickling through positioning — while the dollar held firm. The logic is legible even if the conclusion is disputable: a hawk in the chair, regardless of whatever current accommodation he telegraphs, is structurally less likely to flood liquidity on demand. The "Fed put" becomes a smaller put. Asset valuations that depend on perpetually easy money have a problem, eventually.
Eventually is doing a lot of work in that sentence.
Here is the part nobody wants to say out loud: the confirmation itself may not happen on schedule. Sen. Thom Tillis, a Republican on the Banking Committee, sat through the entire hearing and asked Warsh precisely zero questions about monetary policy. He used his time to demand that the Justice Department drop its criminal investigation into Powell — a probe into testimony about a headquarters renovation, which a federal judge last month said was supported by essentially no evidence — before he would cast a vote. With Democrats uniformly opposed and the committee closely divided, Tillis is a single-vote veto. Powell's term ends May 15th.
Do the arithmetic. If Warsh isn't confirmed by May 15th, the Federal Reserve has no chair. The vice chair steps up as acting chair. Policy continuity is theoretically maintained. But the signal — that the United States cannot manage an orderly succession at its central bank because the executive branch is prosecuting the outgoing chair for a building renovation — is a signal that will be read very carefully in Beijing, in Frankfurt, in Riyadh.
The dollar index didn't collapse yesterday. It rarely does on any single day. But these things accumulate. The IMF flagged it this week in the language central banks use when they want to alarm you without saying something inflammatory: "eroding institutional credibility." Three words. Enormous weight.
And yet the S&P 500 closed Tuesday at 7,064. The Nasdaq is above 24,000. Earnings season is grinding out double-digit growth. The Magnificent Seven are projected to expand net income by 25% this year. Every dip gets bought.
What the equity market is pricing, whether consciously or not, is a version of events where all of this resolves. Warsh gets confirmed, maybe late, maybe messy. The Hormuz ceasefire extends or a deal gets signed. Oil comes off. Inflation cools toward 2.5%. Warsh cuts once or twice, framing it as data-driven rather than politically induced, and the narrative holds together just long enough for earnings to carry the index through the year.
It's possible. It's not crazy. The market has been right about resilience before, including in moments when it had no obvious right to be.
But it is being asked to hold a lot of contradictions simultaneously. An inflation-fighting central bank chair who will cut rates. A war whose ceasefire expires tonight that investors are largely ignoring. A criminal investigation that is blocking a confirmation that needs to happen in three weeks. A president who calls the current chair a "major loser" and then, the same week, says he has no intention of firing him.
When Sen. Kennedy asked Warsh the sock puppet question, the room apparently laughed. That's the market right now: sitting in a room where the jokes land, not asking too hard what happens when the laughter stops.
Powell's portrait. The wall. Halfway off.
Watch the confirmation vote. Watch the Tillis position. Watch whether the DOJ probe gets quietly buried or whether it becomes a three-week standoff that leaves the world's most important central bank temporarily headless at the exact moment oil is near $100, inflation is above target, and the ceasefire clock just ran out.
This is what institutional decay looks like when it's functioning.
