It's set: Walsh is about to appear, on the same day as the Iran negotiation deadline. Coincidence or fate?

```

On April 21, the Iran ceasefire agreement expires. On the same day at 10 a.m., Kevin Warsh will sit at the Senate Banking Committee hearing.

For the past two weeks, markets have been calibrating oil and equities with the progress of Iran negotiations. WTI recently dropped from a stage high of about $114 to the current $97, and Nasdaq is up nearly two percentage points. At the same time, the significance of Warsh’s hearing is compressed into a simple interest rate issue: Is he hawkish, and when will he start cutting rates?

These are two issues on different scales. The market is seriously focused on the smaller one.

The "last sword" left from the Powell era

In March 2020, from the Fed announcing rates to zero to actual implementation, only took 11 days. Then came unlimited asset purchases. In March 2023, after Silicon Valley Bank collapsed, the Fed patched together the Bank Term Funding Program (BTFP) over a weekend.

Every time, the central bank goes first, faster than market expectations, bigger than necessary.

This isn’t just policy; it’s a promise—implicit, never written: whatever happens, the central bank comes last.

This promise isn’t free. It quietly but continuously suppresses the risk premium of all risk assets. Growth stocks can sustain valuations with ten-year forward earnings because someone props up discount rates. "Buy the dip" works because everyone knows who's behind that phrase.

Warsh resigned from the Fed in 2011, mainly due to dissatisfaction with sustained QE. He said: "The most fundamental problem with sustained quantitative easing is that it causes capital misallocation in the economy." In 2020, as the Fed again layered monetary expansion over fiscal stimulus, he publicly called it "one of the worst mistakes in Fed history."

His logic is clear: let private markets self-clear first, central bank intervenes later.

This is not "later rate cuts" nor "a bit more QT." It's sheathing the "last sword"—telling markets that next time it'll be drawn much more slowly.

The curve has already been moving this way

The spread between the 10-year and 2-year US Treasury is currently about +54 basis points.

The US yield curve was inverted for 27 months, the longest in history. Inversion ending sounds good, but the problem is how it ended.

In a normal cutting cycle, inversion is resolved by "bull steepening"—short end plunges, long end drops slightly, curve steepens naturally, benefiting growth stocks. It's the standard script.

This time, it's not.

This time it's "bear steepening"—short end falls slightly, but the long end rises. The driver isn't rate cut expectations, but expansion of longer-term duration premium: inflation pressure, government debt supply, plus anticipation that Warsh will stop Fed bond purchases—all rising together.

For growth stocks, bull and bear steepening mean the opposite. Bull steepening is falling discount rates and valuation repair. Bear steepening is rising long-term real rates, high P/E assets slowly repriced—not a crash, more like gradual deflation.

The QT Warsh plans, compressing the balance sheet from $7 trillion to $4 trillion, will accelerate this process. The short end may get cuts as the economy slows, but the long end won't follow. The market's current pricing hasn’t fully digested this.

Which answer is $4,761 gold waiting for?

On January 30, the White House nominated Warsh; gold plunged in one day, and later dropped about 18%. The logic is linear: Hawkish Fed chair → stronger dollar → higher real rates → higher gold opportunity cost.

Then the Iran war broke out, gold rallied from that low to $4,761, retracing several multiples of that 18% drop.

But today, something doesn’t match. Optimism about Iran talks pushed stocks up 1.2%, oil down 7%, gold only up 0.33%. If gold mostly trades on Iran risk premium, it should fall today, or at least not rise.

There are two logics supporting $4,761.

One is demand for inflation hedging—the energy shock pushed March CPI up to 3.3%, so markets buy gold to hedge purchasing power erosion. This logic weakens as talks progress, a short-term pressure on gold.

The other is deeper: If next time crisis strikes, the Fed isn't first on the scene, then gold as the "ultimate asset with no counterparty risk" needs to be repriced. This has nothing to do with Iran, and is directly linked to Warsh’s hearing.

At the hearing, how Warsh answers "How fast would you act in a crisis?"—that determines which logic dominates. Confirming "market self-clearing," the second logic gets support; soften stance, and after Iran fades, logic one will pull gold down.

No one has faced this kind of succession

On May 15, Powell’s term ends, and Warsh takes over. From today to then, there’s one month.

Powell is still Fed chair, can still call FOMC meetings, still has a vote. Meanwhile, Warsh is publicly examined in the Senate, and the market will start adjusting positions based on his signals. Both will speak to the market at the same time, possibly in different directions.

There's another layer: The Justice Department is investigating Powell, who has publicly claimed this is the White House's way to interfere with monetary policy. This confrontation makes the handover hard to predict: will Powell do something unusual before leaving, like cut rates ahead of schedule? Not the base scenario, but this tail risk isn't priced in.

Tillis is another variable. The North Carolina GOP senator has said that unless DOJ drops its probe into Powell, he’ll refuse to vote for any Fed chair nomination. Republicans have a majority of only one in the Senate Banking Committee, so Tillis' vote can stall the entire confirmation process.

April 21: What to watch, in order

The hearing starts at 10 a.m. Eastern. Opening statements are low density; can wait.

The truly valuable part is Warsh's answer on "timing of crisis intervention". If he says "prudently intervene," it means markets will have to bear the brunt longer in the early stages of the next crisis; if he says "data-driven intervention," it's closer to a continuation of Powell's era, and markets will relax.

When the answer comes, 30yr Treasury futures move first. Duration premium pricing happens on the long end, faster than stocks. Gold follows within 20 minutes.

There are two questions in Q&A worth special attention: the schedule for balance sheet compression ("hit $4 trillion during term" versus "hit $4 trillion in two years" is a huge difference), and his stance on Fed independence. Whether Tillis is present and his tone are signals for whether confirmation goes smoothly.

Watch Nasdaq after hours. QQQ is sensitive to two things: long-term discount rates (bear steepening depresses valuations) and the Fed Put's existence (behavioral function change depresses valuations). If Warsh is clearly hawkish, QQQ will reflect next day opening pressure overnight.

The direction for bank stocks is opposite. Looser regulation plus net interest margin expansion from bear steepening benefits big commercial banks. But much of this logic is already priced in—if the hearing is "as expected," there won’t be big further gains.

If Tillis says no, all the above gets rewritten

All the pricing logic above depends on Warsh taking over on May 15 as scheduled.

If Tillis flips, the whole framework reverses. Growth stocks benefit in the short term, long bonds get relief, gold loses its "Fed Put disappearance" logic.

If Warsh softens his stance at the hearing—such as saying, "In a crisis I’ll act quickly, fundamentally no different from Powell"—the pricing for "behavior function change" will partially recede. Bear steepening slows, QQQ gets a breather.

One thing is more honest than stocks: in the week after the hearing, check whether the 30yr Treasury duration premium keeps expanding. If it expands, markets believe him. If it stabilizes or narrows, markets think it was just hearing theatre.

The trajectory of the 30yr Treasury and QQQ after April 21 will tell you what the market truly believes.

Risk Notice & DisclaimerThe market carries risk; invest prudently. This article does not constitute personal investment advice nor take into account individual users' specific investment goals, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein match their circumstances. Investing based on this, responsibility is borne by oneself. ```