The Test Almost Always Comes

With Jerome Powell's term as Chair of the Federal Reserve expiring on May 15th, roughly two and a half weeks from now, it is instructive to examine prior instances of new Fed Chairs coming into power and how markets have reacted.

Of course, you might argue the market reactions and new Fed Chairs were "correlations, not causations." Furthermore, the Kevin Warsh nomination vote may not go so smoothy, although recent reports are that the way is being paved for him to take over as Fed Chair in a timely manner.  

Either way, note the rough patches most Fed Chairs faced throughout modern American history, seen on the graph below. (Credit to @PolycarpFX on X who posted the below graph in reply to one of my tweets). 

Of note, Eugene Meyer was Fed Chair during the heart of the Great Depression, after the 1929 crash but right smack in the teeth of the subsequent long, drawn out bear market which actually eviscerated more capital during that endless multi-year downtrend.

And Alan Greenspan took over in August 1987, two months shy of the October 1987 crash. 

Markets love to put new Fed Chairs to the test, at least initially. Although we are seemingly living through one outlier event after another these days, the setup does seem viable to test Warsh , with him likely coming in as Fed Chair after Powell did everything he could to kick every can down every road and solve virtually none of the issues he could have if he had gotten anywhere close to Paul Volcker (pictured above)'s league.