Markets May Misprice Rapid Fed Rate Cuts Under Warsh, Economist Warns

Markets may be mispricing how sharply U.S. interest rates could fall if Kevin Warsh becomes the next chair of the Federal Reserve. A new forecast points to rapid and sizable rate cuts—an outcome that could weaken the dollar and reignite risk assets, including Bitcoin.

Economist Flags Deep Fed Easing Risk as Warsh Chair Speculation Grows

Fears that a Warsh-led Fed would turn aggressively hawkish may be overstated, according to Robin Brooks, a senior fellow at the Brookings Institution with a strong track record on global fiscal risks. His outlook challenges recent market positioning driven by skepticism over the pace and scale of future easing.

Brooks said Tuesday that Warsh could move quickly to reset monetary policy after taking office. He expects 100 basis points of rate cuts across four Fed meetings in June, July, September, and October. That would far exceed current market pricing, which implies roughly 40 basis points of easing over the same period.

This could be portrayed as a reset of monetary policy to acknowledge a lower neutral rate and far exceeds the roughly 40 basis points in cuts that markets price over this period, setting the stage for more dollar weakness.

Robin Brooks

In Brooks’s view, lower neutral interest rates give policymakers room to cut more aggressively without reigniting inflation. A shift of that magnitude would likely pressure the dollar and improve global liquidity conditions. Historically, periods of currency weakness during easing cycles have been supportive for crypto prices.

Brooks’s track record adds credibility to his warning. For more than a year, he has flagged rising fiscal stress in Japan, a concern that has begun to materialize as government bond yields climb to record highs. That experience reinforces his view that markets may once again be misreading policy risks.

If his forecast proves accurate, the Fed’s benchmark rate could fall to a 2.5%–2.75% range before November’s midterm elections, down from the current 3.5%–3.75%. Jerome Powell’s term as chair ends in May, and the Fed last month paused after delivering 75 basis points of cuts across three meetings.

Risk Assets Drop as Markets Bet on Tighter Policy

Recent market moves suggest investors are bracing for a much tighter policy path. Since rumors of Warsh’s potential nomination surfaced, Bitcoin has fallen from around $84,500 to below $75,000. Gold and silver have dropped sharply, while the dollar index has climbed, signaling a broad pullback in risk appetite.

Brooks argues that this reaction overlooks the political and economic incentives likely to shape decisions taken by Warsh:

• Trump has publicly called for interest rates near 1% and blamed high borrowing costs for slowing growth.
• An early confrontation with the White House could undermine Warsh’s credibility as chair.
• Faster cuts could align policy with cooling inflation and weakening demand.
• Markets may need to reprice rapidly if easing accelerates beyond expectations.

Concerns about Warsh’s past record also weigh on sentiment. As a Fed governor during the 2008–09 financial crisis, he was more cautious about inflation risks than many of his peers. Brooks contends that today’s backdrop is fundamentally different, with inflation easing and productivity gains providing cover for looser policy.

Artificial intelligence factors into that assessment. Warsh has argued that higher productivity growth can help contain prices while supporting wage gains. In a November Wall Street Journal op-ed, he wrote that a one-point increase in annual productivity growth could double living standards within a generation.

Taken together, that framework supports the case for faster easing without sacrificing inflation control. For crypto markets, the combination of lower rates and a softer dollar could set the stage for a renewed bull phase.