Trump started a battle with Jerome Powell, but the Fed chairman is winning the war: He won’t leave until probe is ‘well and truly over’

The Fed held the target federal funds rate at 3.50%-3.75%. President Trump has nominated Kevin Warsh as Fed chair, but a DOJ investigation into Chair Jerome Powell (subpoenas quashed, appeal pending) has Powell refusing to leave until resolved and Sen. Thom Tillis saying he will not advance confirmations while the probe is open, potentially delaying Warsh's confirmation. Powell warned he would remain as chair pro tempore beyond May if a successor is not confirmed; his Fed board term runs through 2028.

Analysis

A prolonged confirmation gap for the Fed chair creates a near-term ‘‘status quo’’ monetary policy risk: markets will price in a higher probability that policy stays tighter for longer, keeping the front end of the curve bid and volatility in short-dated Treasuries elevated. That outcome compresses duration-sensitive multiple expansion while mechanically boosting banks’ net interest income prospects and trading revenue for at least the next 3–9 months; the effect is front-end rate sensitive and can be punctuated by spikes when committee or court milestones headline.

Second-order winners include scale-oriented universal banks and boutique trading/wealth franchises that monetize higher rates and wider trading spreads; losers are long-duration secular growth equities, mortgage originators, and CRE lenders where mark-to-market and credit-impairment risk concentrate. Watch liquidity plumbing: heavier dealer inventory needs against a backdrop of political uncertainty could widen bid-ask across IG credit and MBS, amplifying funding costs for levered balance sheets within weeks.

Catalysts and tail risks are binary and calendar-driven — committee scheduling, appellate timetables, and any abrupt macro shock (geopolitical energy spike or a weak payroll print) can flip front-end positioning quickly. Expect a multi-month window where headline-driven skews favor option structures that monetize elevated near-term volatility; a fast confirmation or an explicit policy pivot would reverse the higher-for-longer trade within 1–4 weeks, creating a rapid long-duration rally.

Key Decisions for Investors

• Long MS equity (3–6 month horizon): overweight large universal banks (MS) vs regional banks (KRE) using a pairs approach — long MS / short KRE — to capture scale and capital-markets tailwinds while hedging idiosyncratic CRE/deposit risk. Target 6–12% upside vs 10–15% downside risk; tighten if 2s yield drops >25bps in a week.
• Short 2-year Treasury futures (1–3 months): position for higher front-end yields if confirmation is delayed. Size for asymmetric risk (theta-friendly); exit or reduce on a 20–30bp peak-to-trough yield decline or on rapid committee calendar progress.
• Buy 1–2 month SPX put spreads (5–7% OTM) around key committee/court dates to hedge headline-driven volatility — cost-effective protection against a 5–10% downside move over the next 60 days with defined max loss equal to premium paid.
• Long selective bank call spreads (3–6 months) on scalable franchises (MS) rather than outright purchases to limit capital at risk; pair with a small allocation to long-dated IG credit protection (CDS or ETF) as insurance against a credit repricing shock — aim for 2:1 upside/downside payoff net of hedges.