Former Fed Governor Kevin Warsh, widely regarded as a leading candidate for Fed Chair, has used the phrase "inflation is a choice" six times and "first principles" eleven times across five recent public appearances, signaling an intent to reassert Fed independence and credibility through a more hawkish policy posture. Markets are beginning to price the possibility that a Warsh-led Fed would revisit the current rate trajectory and potentially tighten beyond current forward guidance.
For Armada's traditional repo desk, a Warsh-driven shift in Fed policy expectations would reprice SOFR forwards, affect the Fed RRP facility rate, and alter the carry economics of term repo positions. Counterparties including hedge funds and MMFs may also reprice their duration risk. Stress-testing the book against a scenario where SOFR rises 50-75bps beyond current forwards is warranted given the rhetoric.