Fed Chair Kevin Warsh and Employment Data…

Fed Chair Kevin Warsh and Employment Data: Why March-April 2026 Could Trigger Major Market Shifts

Understanding the Real Economic Signals Behind Fed Policy and Labor Market Weakness

As a veteran economist who's watched multiple Federal Reserve transitions, I can tell you that the market's reaction to potential Fed Chair Kevin Warsh reveals a fundamental misunderstanding of how central bank leadership actually works. Everyone rushed to label Warsh as "hawkish" based on historical meeting minutes and his documented aversion to quantitative easing. But here's the critical insight financial media consistently misses: Fed Chairs are employees, not independent philosophers. If President Trump appoints Warsh expecting alignment with his economic vision, the new Chair isn't going to immediately implement contradictory policies just because they matched his academic preferences a decade ago.

The Fed Chair Selection: Why the Market Reaction Was Predetermined

The market's initial negative reaction to Warsh's potential appointment obscures a counterintuitive truth: turbulence was inevitable regardless of the selection. If Kevin Hassett (the perceived dove close to Trump) had been chosen, markets would have feared aggressive rate cuts unleashing inflation, spiking long-term bond yields, and crushing stock valuations. With Warsh (the perceived hawk), markets simply see tightening signals and panic anyway.

What actually matters isn't Warsh's historical "hawk" label—it's his evolved economic views post-Trump era, which now include beliefs that AI innovation will increase productivity and stabilize prices. More importantly, both Warsh and Trump share concerns about excessive Fed power, particularly regarding banking regulation. This alignment suggests the incoming Chair might prioritize regulatory changes that encourage banks to purchase more Treasuries over strict adherence to old hawkish monetary ideologies.

The consensus pick of Warsh, strategically pushed by insiders like Bessent, was actually designed to prevent the more destabilizing long-term reaction that would have followed a Hassett appointment. Understanding this political-economic dynamic is crucial for positioning portfolios correctly.

Employment Data Reveals Economic Weakness, Not Immigration Illusion

The recent ADP private payroll report showing just 22,000 jobs created has sparked fierce debate about labor market health. Mainstream economists and the Fed argue this reflects reduced immigration under stricter border policies, not genuine economic weakness. Their "Goldilocks" scenario claims that when non-farm payrolls match reduced labor force growth from fewer immigrant workers, unemployment remains stable and policy can stay unchanged.

This conventional wisdom is dangerously wrong.

Here's the critical question nobody's asking: Why did immigration stop in the first place? The standard answer—"Trump's policies made border crossing impossible"—ignores basic economic reality. Even under heavy enforcement during the Biden administration, workers risked everything to cross borders when jobs paying thousands of dollars monthly awaited them.

The uncomfortable truth from ground-level intelligence: Hispanic communities already established in the U.S. are advising family members abroad to stay put, saying "Don't come over; I'm having trouble finding jobs myself." This reveals the actual causal chain: economic weakness is the cause, not the effect, of low job numbers.

If companies aren't hiring because demand is genuinely weak, immigrants have no incentive to risk the journey. Therefore, the low non-farm payroll isn't an optical illusion from reduced immigration—it's a legitimate indicator of deep economic softening that the Fed's current wait-and-see policy dangerously ignores.

March-April 2026: The Critical Turning Point for Markets

Forget election schedules and political forecasting—the real catalyst for market shifts follows a specific economic lag: the one-year effect of tariffs. Major trade policy changes, particularly tariff implementations, historically show a 12-month time lag before negative effects fully ripple through the economy, impacting inflation and growth. Since significant tariffs were implemented around April 2025, the anniversary impact arrives imminently: March-April 2026.

The deflationary evidence is already emerging. While official CPI data moves sideways or slightly down with typical lag, real-time private-sector inflation tracking services using big data to mechanically monitor online prices daily—services like Truflation—show inflation rates dropping sharply since February. This suggests the year-long tariff effect is manifesting as deep deflationary pressure, precisely the fundamental shift that will force Federal Reserve policy changes.

This potential shift toward dovishness, driven by weakening economic fundamentals rather than political pressure, could trigger cascading effects: U.S. dollar weakness, currency exchange rate stability for Japan and South Korea, falling domestic interest rates in those markets, and improved U.S. stock valuations through renewed liquidity. March and April represent critical inflection points where we might see dramatic movements, potentially pushing the won-dollar exchange rate to unprecedented levels.

Investment Strategy: Rebalancing for Inevitable Volatility

The current emerging markets stock market rally, particularly in Korean KOSPI, shows unusual characteristics: many individual investors haven't participated or have actively shorted with leveraged inverse ETFs. This creates a feedback loop where forced short covering accelerates upward momentum—bearish betting paradoxically fuels bullish outcomes.

However, Warsh's appointment signals that stock valuations are becoming burdensome. With radical technological uncertainty (who predicted explosive AI-driven memory chip demand six months after consensus predicted industry glut, it's time to reduce concentrated individual stock bets and favor index funds.

More critically, rebalance into safe-haven assets. Not just for rate cut speculation, but to collect high carry yield while waiting. With global military spending rising and nations prioritizing self-reliance, precious metals like gold provide essential geopolitical risk hedging.

The bottom line: While rallies may continue, trim aggressive stock concentration now and rebalance into high-yielding fixed income and precious metals to weather the volatility that March-April economic data will inevitably trigger.