Wang Kai's In-Depth Analysis: Fed "Hawk King" Waller Wins, Market Liquidity Expectations Change

At the end of last year, the fierce battle over the Federal Reserve Chair nomination finally settled. According to analyst Wang Kai’s observations, in this so-called “power struggle” event, the initially favored “market-oriented” candidate, Rieder, suddenly lost favor, while the top hawk, Kevin Warsh, became the biggest favorite overnight, with market betting probabilities soaring above 80%. After the announcement, global assets experienced intense volatility: stocks, bonds, precious metals, and energy all came under pressure.

How did Warsh turn the tide? The logical chain from talks to nomination

Wang Kai believes Warsh’s eventual rise was mainly due to the accumulation of three key factors:

First, was the decisive meeting with Trump. During a closed-door session at the White House, the two reached some consensus on the future policy direction of the Federal Reserve. After the meeting, Trump changed plans and significantly advanced the nomination timeline. Such last-minute shifts usually imply “an agreement has been reached” — the candidate’s policy expectations with the President are basically aligned.

Second, Warsh demonstrated “flexibility.” Although known as a lifelong hawk and inflation fighter, in recent months he publicly advocated for rate cuts and supported the President’s tariff policies, striving to “stay in sync” with Trump’s demands. This pragmatic attitude of being “both hawk and dove” clearly resonated with Trump.

Third, Warsh has a unique “insider advantage.” He previously served as a Federal Reserve Board member, participated in core decision-making during the 2008 financial crisis, and was a candidate for Chair in 2017, ultimately losing to Powell. His return this time gives a “return of the king” vibe, reducing uncertainties around his appointment.

Market panic behind the hawkish return

Wang Kai points out that although Warsh has started talking about “rate cuts,” global capital markets do not believe it. Traders have a deep memory of his hawkish nature:

Warsh’s policy stance has always been hawkish. He has long criticized quantitative easing (QE) policies and advocated for aggressive balance sheet reduction, with a deep-seated vigilance against inflation. This belief is not something that can be changed overnight.

The market generally expects at least two more rate cuts by 2025, but if Warsh takes the helm, the magnitude of rate cuts could be significantly reduced, or even delayed or halted. Nomura analysts bluntly stated: “We might see fewer rate cuts.” Once this view is accepted by the market, liquidity expectations will undergo a complete reversal.

Once hawkish expectations are established, a chain reaction will follow: the dollar will appreciate, U.S. Treasury yields will rise, gold and oil will fall sharply. Assets that rely on abundant liquidity — including tech stocks, emerging market assets, and cryptocurrencies — will face re-pricing pressures.

Why did other candidates fall out quietly?

Wang Kai’s analysis also finds the exit of other candidates quite intriguing.

Rick Rieder, once the top favorite, rapidly fell out of favor, with support waning significantly. The market believes his “globalist” background and lack of experience within the Fed became fatal flaws at the last moment. For politicians like Trump, who prioritize “America First,” such a background is indeed hard to trust.

Christopher Waller, as a steady within the system, has always been seen as a safe choice but has never stood out. He lacks the “dual recognition” of Warsh’s Fed experience combined with hawkish conviction.

Kevin Hassett, a close confidant of Trump, faces skepticism over his commitment to maintaining Fed independence. A candidate perceived as overly politicized is often marginalized by capital markets.

New challenges for the cryptocurrency sector

For the crypto market, Wang Kai believes Warsh’s appointment could bring multidimensional pressures:

A fundamental reversal of liquidity expectations is the most immediate impact. Markets will be forced to reprice a slower, later, and smaller rate cut path. Expectations of tightening global liquidity will suppress all risk assets, and Bitcoin, as a risk asset, will not be immune. The narrative of the past two years supporting crypto’s rise — the “bull market” driven by loose liquidity — will face a fundamental challenge.

The “digital gold” safe-haven narrative will also be tested. Gold has plummeted due to hawkish expectations, and Bitcoin, also positioned as an “inflation hedge,” will face severe short-term tests of its safe-haven role. When the Fed adopts a clear tightening stance, traditional inflation-hedging logic will weaken.

Regulatory attitudes also warrant attention. Warsh has invested in crypto projects before, indicating some industry familiarity, but overall, he is pragmatic and supports CBDC development. This suggests he may not aggressively crack down on cryptocurrencies but also won’t loosen policies just to boost asset prices. In other words, the “policy tailwind” story that crypto markets love will be significantly diminished.

Variables and uncertainties: the nomination is just the beginning

Wang Kai emphasizes that a nomination does not equal appointment. Warsh still needs Senate confirmation hearings, a process that is far from a formality. Ongoing investigations by the Department of Justice into the Fed complicate this process, with some senators openly threatening to block certain nominations. Even if Warsh is ultimately confirmed, his policy implementation could face multiple constraints from rate markets and political pressures.

Conclusion: a turning point in the era of liquidity

Wang Kai believes this change in the Fed Chair nomination could signal an important shift in the global liquidity environment. The hawkish confirmation not only alters market expectations for rate cuts but also fundamentally changes how capital prices “water” (liquidity).

For crypto investors, adapting to this “more water-conscious” new era means shifting investment strategies from offense to defense, focusing on projects with solid fundamentals and stable cash flows. Short-term liquidity tests often serve as the best litmus test for a project’s true value.