Commerzbank’s Christoph Rieger highlights Kevin Warsh’s confirmation hearing as a key event for US rates, with potential for far-reaching changes to Federal Reserve balance sheet operations. He expects the proposals to be technically complex but impactful across the yield curve, money markets, cross-currency funding and swap spreads. Banks are seen as likely beneficiaries if they assume more Fed-like functions.

Warsh agenda could reshape US rates

"More relevant could be Kevin Warsh's confirmation hearing before the Senate Banking Committee. A formal vote is not expected as the Republican Senator Tillis has not given up his opposition, which means the Committee is short one vote for advancing the nomination to the Senate floor."

"Tillis is unlikely to drop his veto before the DoJ charges against Powell are resolved. However, after today's hearing the committee could move immediately to a vote when the DoJ issue is resolved, keeping chances alive for Warsh to be sworn in before Powell's term expires on 15 May."

"In terms of content, the hearing could add colour to the profound fundamental changes Warsh wants to implement as Fed chair. As argued in last week's AotC, the proposals may sound technical, but they can have far-reaching consequences for various actors and market segments."

"The yield curve should steepen."

"In money markets, the measures should allow more repo volatility and generally higher market rates relative to the administered rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)