What can we expect from a new Fed Chair?

The US Federal Reserve (Fed) meeting last week was uneventful. Policy rates stayed where they were. The real story came afterward, when the US President nominated Kevin Warsh to run the central bank. Warsh served as a Fed Governor from 2006 to 2011, which means he was there during the response to the global financial crisis. Lately, he’s sounded open to lower policy rates, but historically, he pushed back against the Fed’s expansion of its balance sheet.

Looking forward, President Trump wants borrowing costs to fall to around 1% and has been clear that the next chair must be willing to slash rates. Warsh’s recent comments leave the door open to rate cuts but could be paired with a leaner balance sheet.

Bigger picture, markets will test the next chair’s independence and his commitment to the Fed’s dual mandate (inflation and labour market). Warsh has argued that AIdriven productivity is disinflationary, which gives him a rationale for easing. But he will still need to earn credibility. That challenge is greater now, given the President’s public pressure for policy rate cuts. But we doubt policy takes a steep turn in June when the handover happens given the Chair has only one vote on a divided committee. But uncertainty rises: Warsh could bring policy rates lower than where most see them, and thus despite the solid economic backdrop in the US.

Following the announcement last week, markets were mixed. The dollar rebounded a bit, gold slipped, Treasury yields edged up moderately, and equities pulled back. For our part, we stay underweight US Treasuries. The fiscal outlook looks set to deteriorate, and questions around debt sustainability haven’t yet gone anywhere.

2026 started on a solid macro footing but quickly hit another wave of geopolitical shocks, which pushed volatility higher across markets. Growth didn’t crack, yet investors kept recalibrating risk. By monthend, US equities were positive but lagging, emerging markets outperformed, the dollar weakened, bond yields went sideways and precious metals jumped but weakened towards the final part of January.

Macro conditions remain steady. The US runs above trend growth with stable inflation and only some labourmarket cooling, which supports a gradual Fed easing path. Europe stays in a balanced growthinflation zone. Emerging markets (EM) continue to benefit from Chinese policy support, a softer USD and global AI demand relying on Asian hardware. This is why we’re overweight EM equities. We also keep a modest overweight in the US and Europe, backed by solid earnings and defence spending.

Given the geopolitical backdrop, diversification matters. We hold gold, broad commodities and inflationprotected bonds as part of our longterm allocation. And where permitted, we keep our US equity warrant, which acts as insurance when US equities fall.

January was wild for precious metals. Gold jumped as much as 30% and silver 60%. Moves like that don’t usually come from assets meant to act as safe havens unless the world is ‘falling apart’. That’s not the case today. The rally looked more like frenzied buying, and the snapback confirmed it. Gold and silver dropped around 10% and 20% last week. Again, not exactly how safe havens normally behave.

Looking ahead, gold still has a solid foundation: expected Fed rate cuts, a weaker dollar, lingering geopolitical tension and ongoing central bank buying. Silver is more vulnerable. Its industrial demand tends to fade when prices run too far. Right now, technicals and valuations for both metals look stretched. So, we stick to our longterm weights across gold and broad commodities, as the latter also keeps us exposed to silver as well as industrial metals, agriculture and energy.

Talking about energy, oil climbed about 5% last week on speculation that the US might take action against Iran. Even so, we don’t think prices could go much above 70 dollars a barrel. Trump signalled he’d prefer to avoid military escalation as he has little incentive to let oil and inflation rise heading into the midterms, while the market remains well supplied.

Lastly, the dollar broke through a support level it had held since 2011. We expected this weakness, and we think the trend continues as US fiscal and monetary policy ease. That’s why we hedge our US equity exposure against dollar swings, and it has paid off.

The US labour market takes centre stage this week. We get private hiring (Wednesday), then nonfarm payrolls and the unemployment rate (Friday). Market expectations point to steady conditions relative to recent months. Numbers like that can move markets because they don’t automatically justify lower policy rates, especially if the ISM survey for services (Wednesday) stays firm.

In Europe, we expect both the European Central Bank (ECB) and the Bank of England (BoE) to hold rates at 2% and 3.75%, respectively (Thursday). We think the ECB will keep its stance throughout 2026, while the BoE will only trim slightly given stubborn inflation. The story isn’t the same across the Channel. Eurozone inflation is likely to slow further toward 1.7% yearonyear in January’s flash estimate, helped by still low energy prices (Wednesday).