Yardeni Research told investors in a briefing note that the Federal Reserve's internal cohesion could hinge on how the U.S.-Iran conflict develops and on who ultimately leads the central bank. The firm presented three distinct economic scenarios that it says would shape whether policymakers rally behind a common path or split along emerging lines.
The analysis centers on President Donald Trump's nominee for Fed chair, Kevin Warsh, and the sitting chair, Jerome Powell. Yardeni writes that Warsh will likely lean toward dovish policy-making under pressure from the White House, though it notes that the timing of Warsh's confirmation is still unclear. Powell has said he will remain "chair pro-tem" until Warsh is confirmed, a dynamic Yardeni warns could complicate consensus-building if Powell continues to serve on the Board while Warsh moves through confirmation.
Yardeni sets out three scenarios, each tied to different war trajectories and economic responses:
- "Roaring 2020s resumed" - This scenario assumes a short military confrontation followed by a rapid return to strong, productivity-led growth. In that environment, Yardeni suggests both Powell and Warsh could support policy easing. The firm expects Warsh might press for a larger rate cut while Powell would remain focused on incoming data when setting policy.
- "No landing" - Here, growth remains resilient while inflation proves stubborn. Yardeni anticipates that Powell and most members of the FOMC would not advocate cutting rates in this case. By contrast, Warsh could face political pressure to ease and could find himself dissenting from the majority view.
- "Stagflating 1970s redux" - Under a prolonged conflict combined with simultaneous inflation and economic weakness, the firm expects both policymakers to favor easing. Yardeni adds that Warsh would likely push for more aggressive rate reductions, a stance that again raises the prospect of dissent within the committee.
Across all three outcomes, Yardeni emphasizes that the course of the conflict will be the decisive factor determining whether the Fed speaks with a unified voice or fractures into distinct camps. The note highlights the interaction of geopolitical developments, the uncertain timing of a leadership transition, and differing policy inclinations as the elements likely to shape the Fed's internal alignment.
Yardeni's framing suggests that the policy debate at the Fed could sharpen as the practicalities of leadership change and geopolitical risk play out, leaving the committee's ultimate stance contingent on evolving economic data and the external shock of the conflict.