The Powell playbook ended Friday. The next one hasn’t been written

Kevin Warsh’s response to being sworn in as the new Chairman of the Federal Reserve on Friday was direct. He will lead a reform-oriented Federal Reserve “escaping static frameworks and models.”

What does this mean for our neck of the woods? Whatever framework Warsh constructs over his first 90 days will be the framework GCC monetary authorities operate within, irrespective of regional fiscal needs. Saudi Arabia, the UAE, Qatar, Bahrain, and Oman peg their currencies to the greenback, which means SAMA, CBUAE, QCB, CBB, and CBO will import Warsh’s policy stance with no domestic mediation.

A complicated starting point: Warsh has explicitly told the market the set of assumptions made during Jerome Powell’s Fed are about to change, and the starting conditions complicate everything. April CPI came in at 3.8% — a three-year high. Mortgage rates climbed to a nine-month high. JPMorgan now forecasts rates will likely remain unchanged until mid-2027, with hikes more likely than cuts. Bank of America has pushed its first-cut forecast to 2H 2027.

The tension was visible in the East Room on Friday: Trump pressed a growth-first policy, and Warsh invoked central bank independence and price stability in the same set of remarks. A “reform-oriented” Warsh Fed could move policy faster in either direction than Powell’s framework allowed, which means EM importer treasuries and external financing teams all need to rebuild their 18-24 month assumptions around a framework that hasn’t been disclosed yet.

For GCC sovereign funds, the equation runs differently. PIF cut its international allocation target from 30% to 20% in April specifically to reduce exposure to US monetary policy transmission. The Warsh transition vindicates that swing, but only if the framework shift produces tighter conditions.

A different playbook: If Warsh delivers what Trump wants and rates start moving, GCC SWFs that pulled capital home over the last six months will be reading a different playbook than the one they positioned for Aramco and Adnoc’s war windfalls compound under tight rates. The non-oil credit cycle needed for UAE and Saudi industrial diversification requires the opposite.

MARKETS THIS MORNING-

Asia-Pacific markets were up in early trading this morning, led by Japan’s Nikkei, which soared to record highs as a potential end to the regional war reignited investor appetite. South Korea and Hong Kong are closed today. US markets, too, will be closed today in observance of Memorial Day.

The values in the table above are listed according to the market position as of 3:30pm IST / 2pm GST.