by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with a discussion of potential challenges surrounding the leadership transition at the Federal Reserve. We then provide updates on developments in Iran, the implications of the global memory chip shortage, the potential for renewed tariff increases, and signs of additional strain in the relationship between the United States and its allies. As always, we include an overview of recent domestic and international economic data.

 Fed Pressure: Nearly a month before Fed Chair Jerome Powell’s term is set to expire, controversy is mounting over what will follow. His potential successor, Kevin Warsh, has made financial disclosures that have raised questions about potential conflicts of interest. Separately, US prosecutors have dropped by a Federal Reserve construction site, a move that suggests that Powell may still be under investigation. These developments are likely to fuel scrutiny of the Federal Reserve’s future composition in the coming months.

• Ahead of his Senate confirmation hearing, Kevin Warsh released financial statements showing a net worth of nearly $131 million, making him potentially the richest Fed chair in history. While he has not been accused of any wrongdoing, his wealth is likely to become a target for lawmakers questioning whether he will take advantage of his position for personal gain. In preparation for the hearing, Warsh has announced that he will step down from his advisory roles with various companies.
• Meanwhile, a recent visit by federal prosecutors to the Federal Reserve’s Washington headquarters project underscores that Powell remains entangled in a criminal inquiry over whether he misled Congress about the ballooning cost of the renovation. Although the Fed chair has not been formally charged, the renewed attention to the case is widely seen in Washington as a reminder that the White House will look to discourage him from remaining at the Fed beyond the official end of his term in May.
• The potentially rocky confirmation of Kevin Warsh, together with an ongoing investigation by US authorities, underscores the uncertainty surrounding Powell’s position at the end of his term. At the March FOMC press conference, Powell affirmed that he would remain as Fed chair until a successor is formally appointed. He has also left open the possibility of remaining on the Federal Reserve Board, which would make him the first former chair to do so since Marriner Eccles in 1948.
• Although Senator Thom Tillis has stated he will vote against Kevin Warsh’s confirmation as long as the investigation of the Fed is ongoing, Warsh is still expected to be confirmed as Fed chair this month. His hearing is likely to be more contentious than those of prior nominees, as he is expected to face questions about his independence given the White House’s attempts to pressure the central bank to lower rates. He may also face scrutiny over some of his outside ties, which could further dent his chances.
• The fate of Kevin Warsh and Fed Chair Powell is likely to have an impact on bonds. If Warsh were not confirmed, it would likely reduce the chance of a rate cut this year and potentially add volatility to the bond market, as the FOMC clearly feels content standing pat. Meanwhile, Powell’s decision to stay on could lead to a power struggle over the direction of policy. Although we remain confident that the transition will be orderly, we will be looking for any signs that it may not be.

 Iran Update: US and Iranian officials are showing signs of progress as they work toward a peace deal. President Trump has suggested that extending the ceasefire may be unnecessary, noting that the war is close to being over. Meanwhile, Israel has praised the US-brokered talks between it and Lebanon as a potential breakthrough toward ending hostilities, a key condition for Iran before it would agree to a deal with the United States. Although no formal agreement has been reached yet, there is growing optimism on both sides that one could be finalized imminently.

• The two sides are expected to meet for a second round of talks sometime this week. Discussions between Washington and Tehran to end the conflict are largely being built around Iran’s nuclear program. As mentioned in yesterday’s Comment, the two are in disagreement over how long to suspend Iran’s uranium enrichment program, with the US preferring 20 years and Iran offering only five years. However, the president has also pushed for a permanent end.
• While there has been consistent talk about a pathway to end the conflict since it began in late February, there does seem to be some momentum to get a deal done. At the start of this month, the president stated that he would not like the conflict to extend beyond two to three weeks, a timeline that gives negotiators roughly nine more days to find a solution.
• The end of the conflict is likely to trigger a sizable relief rally; however, its sustainability will depend largely on the next phase. As companies report their results over the coming weeks, we will pay close attention to their outlooks to gauge how the conflict is impacting their supply chains. Companies that demonstrate resilience are likely to perform better, while those hurt by the conflict may experience greater volatility. At this time, we remain optimistic that domestic firms should be well positioned following the conflict.

 Tech Supply Crunch: The escalating conflict in the Middle East, coupled with the surging demand for AI infrastructure, has triggered a significant shortage in memory chips. This supply-demand imbalance is projected to drive up consumer electronics prices — particularly smartphones — while forcing margin compression on manufacturers. Ultimately, this shortage underscores the persistent vulnerability of global supply chains and highlights how the intensive resource needs of AI are beginning to disrupt adjacent industries.

 Tariff Return: The US plans to return tariff rates to their previous levels by July. On Tuesday, Treasury Secretary Scott Bessent stated that the new round of Section 301 tariffs will allow the rates to remain in place, citing prior legal victories. The clause would permit the US to intervene if a study reveals that certain countries have benefited from trade due to excessive industrial capacity or forced labor practices. The move is expected to raise tariffs while also giving firms more certainty about future rates.

 UK-US Trade: In a sign of deteriorating diplomatic ties with the US and its allies, President Trump indicated that he may revise the trade agreement he negotiated with the UK last year. The move follows Prime Minister Keir Starmer’s recent criticism of Washington’s actions and its reluctance to assist in ongoing international efforts. In Washington, the prime minister’s remarks are being viewed as evidence that the once “special relationship” between the US and the UK is under growing strain.

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