Markets are panicking. Everyone sees 2022 again. The chart setups look almost identical and the energy shock is real. But the comparison falls apart under scrutiny. The macro is different, and the oil disruption is transitory.

Historically, military conflicts are buying opportunities.

Despite this historical edge, the 2022 comparison has the market's attention. The aftermath looks eerily similar: major energy disruptions, geopolitical shifts, and nearly identical chart patterns across assets — bitcoin being the most striking example.

In 2022, risk assets bottomed on the day of the Russian invasion (February 24th). Yet the subsequent bounce was a bull-trap, and by late March markets had resumed crashing. The true driver of that Q2 crash wasn’t the war, but a hawkish Federal Reserve forced to hike into rampant inflation (which the oil spike made worse).

But the 2022 playbook does not apply here, for two reasons: the macro, and the oil shock.

The Macro: No Hawkish Fed

Today’s macro environment is entirely different from 2022’s.

In 2022, the Fed was behind the curve and about to begin its steepest relative hiking cycle in history, with YoY inflation already at 7.9% and the real Fed Funds Rate at a stunningly negative -7.5% when the war started.

Today, the Fed is in a position of strength and in wait-and-see mode, with a real rate of +1.2% and inflation trending lower.

Even if the oil spike pushes headline inflation temporarily higher, the Fed has room to look through it. At +1.2% real rates, they don't need to tighten into a supply shock. In 2022 they had no choice — at -7.5% they were catastrophically behind. That's the difference that matters for risk assets.

The Fed’s own framework favors inaction. Williams said oil prices would affect the “near-term inflation outlook” but that the Fed would need to “assess persistence”. That is code for: we’re not moving unless this lasts. The U.S. economy is also far less oil-dependent than it was in the 1970s or even 2008, meaning the pass-through from crude to core inflation is weaker than the headline spike suggests. Treasury Secretary Bessent made a similar point: the U.S. is "in a very different position than when Russia invaded Ukraine."

Since the strikes began, four Fed officials have spoken publicly. None altered their outlook. Williams called the market reaction “muted.” Kashkari said it’s “too soon to know” the impact and still sees one to two cuts this year if inflation cools. Hammack, a known hawk, called the current policy stance “neutral” and urged an extended pause. The Fed is telling you in plain English: we’re not reacting to this.

The Oil Shock: Less Persistent

2022: A Structural Shock

When Russia invaded Ukraine, Europe lost access to roughly 4.5 million bpd of Russian crude and refined products — about 3.2 million bpd of crude and 1.3 million bpd of products. It was the largest commodity dislocation since the 1970s. And Western sanctions made the disruption permanent: Russia’s share of EU petroleum imports went from 30% to under 3%.

Russian oil found new buyers in India and China at steep discounts, but the rerouting was slow and messy — longer voyages, strained tanker capacity, spiking freight rates, and a shadow logistics network built from scratch. This chaos hit a market running on fumes: global inventories had been drawing for five consecutive quarters.

Brent peaked near $130 on March 8 and didn’t break below $90 until late August. Six months of elevated prices because the plumbing needed to move them took half a year to rebuild. The shock was structural, not transitory.

2026: A Transitory Disruption

Iran produces roughly 3.3 million bpd and was exporting about 1.9 million bpd before the strikes — almost entirely to China through shadow fleet channels at $11-12/bbl discounts to Brent, with 87% of its tanker fleet already sanctioned by the U.S. Additional sanctions on Iran post-war would change nothing.

But Iran’s own barrels are not what has the market’s attention. The real disruption is the 14 million bpd of crude that transits the Strait of Hormuz, roughly 20% of global petroleum liquids consumption, where traffic has dropped almost to a standstill.

And yet the market response has been a fraction of 2022’s. Because the only thing blocking the flow is the war itself. End the war, the oil moves. And the U.S. controls the off-switch. Trump has projected a four-to-five week timeline. He has also just ordered the DFC to provide political risk insurance for tankers transiting the Gulf, plus Navy escorts if necessary, to restart shipping flows.

With nearly 60% of Americans disapproving of the strikes and midterms approaching, political incentives strongly favor a short engagement.

And unlike 2022, the market entered this shock in surplus — the IEA projected an oversupply of nearly 4 million bpd for 2026, global inventories were at a four-year high, and China had been stockpiling crude at roughly 900,000 bpd through most of 2025. The shock is transitory, not structural.

The Curve Tells the Story

The crude oil futures curve reinforces the point. Comparing the curves of January with March captures both the front-running and the shock itself, and the divergence is stark.

• 2022: front month repriced +42%, tenth contract +21%. The whole strip moved because the market understood rewiring supply chains would take quarters, not weeks.

• 2026: front month repriced +28%, tenth contract just +12% — despite a shock affecting 4.4x more barrels. Deferred contracts have barely moved because the market sees an expiration date to the supply shock.

Note: This chart shows the CL forward curve. The Brent forward curve shows nearly identical moves across both periods.

The Tail Risk

Iran has already struck Ras Tanura, Fujairah, and Qatari LNG facilities — so far mostly debris from intercepted drones, but the targeting pattern is escalating toward energy infrastructure. Gulf state interception rates are high but not perfect, and Iran reportedly has tens of thousands of drones in reserve. If direct hits start landing on refining capacity — SAMREF, Jebel Ali, Jubail — that is lost production that does not come back with a ceasefire. Refineries take months to repair. And the risk is no longer limited to oil. This is becoming a products and gas crisis, not just a crude problem. QatarEnergy has shut down LNG production at Ras Laffan and Mesaieed, removing roughly a fifth of global LNG export capacity.

What matters next: whether serious negotiations emerge, whether Iranian strikes begin consistently penetrating Gulf air defenses rather than being intercepted, whether refining outages start accumulating beyond precautionary shutdowns, and whether Trump’s four-to-five week timeline starts to slip. If the back end of the futures curve starts repricing — e.g., if that tenth contract moves from +12% toward +25% — the market is telling you the shock is turning structural.

But as of today, the curve hasn’t blinked.

Don’t confuse a transitory geopolitical shock (2026) with a major liquidity crisis (2022).

This is not 2022.

The Fed just committed to buying $40 billion in Treasuries every month, and the market is already screaming “QE!”

While the headline number looks like stimulus, the mechanics tell a different story. Powell isn’t trying to juice the economy but rather trying to prevent the plumbing from seizing up.

Here is a look at how the Fed’s Reserve Management Purchases (RMP) structurally differs from Quantitative Easing (QE), and its implications.

What is Quantitative Easing (QE)?

To strictly define QE, and distinguish it from standard Open Market Operations, the following conditions are required:

The Three Mechanical Conditions

1. The Mechanism (Asset Purchases): The central bank purchases assets, typically government bonds, using newly created reserves.

2. The Scope (Large-Scale): The volume of purchases is significant relative to the total market size, intended to flood the system rather than fine-tune it.

3. The Target (Quantity over Price): While standard policy adjusts supply to hit a specific interest rate (Price), QE commits to purchasing a specific volume of assets (Quantity), regardless of the resulting interest rate.

The Functional Condition

• Positive Net Liquidity (QE): The rate of asset purchases must exceed the growth rate of non-reserve liabilities (such as Currency and the TGA). The goal is to force excess liquidity into the system, not just supply needed liquidity.

What is Reserve Management Purchases (RMP)?

RMP is effectively the modern succesor to Permanent Open Market Operations (POMO), which was the standard operating procedure from the 1920s to 2007. However, the composition of the Fed’s liabilities has shifted drastically since 2007, necessitating a change in scope.

• POMO (The Scarce Reserves Era). Prior to 2008, the Fed’s primary liability was physical currency in circulation; other liabilities were minimal and predictable. Under POMO, the Fed bought securities strictly to match the public’s gradual demand for physical cash. These operations were calibrated to be liquidity neutral and small enough that they did not distort market prices or suppress yields.

• RMP (The Ample Reserves Era). Today, physical currency is a minor component of the Fed’s liabilities, which are now dominated by large, volatile accounts like the TGA and Bank Reserves. Under RMP, the Fed buys T-Bills to buffer this volatility and “maintain an ample supply of reserves on an ongoing basis.” Like POMO, it is designed to be liquidity neutral.

  

Why Now: The TGA & Tax Season

Powell implemented RMP because of a specific plumbing problem known as the TGA Drain.

1. The Mechanic: When individuals and corporations pay taxes (especially the major deadlines in December and April), cash (reserves) leaves their bank accounts and moves into the government’s checking account at the Fed (the TGA), which sits outside the commercial banking system.

2. The Impact: This transfer drains liquidity from the banking system. If reserves drop too low, banks stop lending to each other, causing a Repo Market crisis (like in September 2019).

3. The Solution: The Fed is launching RMP now to offset this drain. They are creating $40B in new reserves to replace the liquidity that is about to be sequestered in the TGA.

   Without RMP: Tax payments tighten financial conditions (Bearish).

   With RMP: Tax payments are neutralized (Neutral).

Is RMP actually QE?

Technically: YES. If you are a strict monetarist, RMP is QE. It meets all three mechanical conditions: It is a large-scale asset purchase ($40B/month) using new reserves with a quantity target.

Functionally: NO. RMP acts as a stabilizer, whereas QE acts as a stimulus. RMP does not materially ease financial conditions but rather prevents them from tightening during events like the TGA refill. Because the economy naturally drains liquidity, RMP must run constantly just to maintain the status quo.

The Tipping Point: When does RMP become QE?

For the RMP program to cross the line and become full-blown QE, one of two specific variables must change:

A. The Duration Shift. If RMP begins buying Treasury Bonds or MBS, it becomes QE. By doing so the Fed removes interest rate (duration) risk from the market, lowering yields and forcing investors to reallocate into riskier assets, which boosts asset prices.

B. The Quantity Shift. If the organic demand for reserves slows (e.g., the TGA stops growing), but the Fed keeps buying $40B per month, RMP becomes QE. The Fed is now injecting excess liquidity that the plumbing doesn’t need, which will inevitably spill over into financial assets.

Conclusion: Market Impact

RMP is designed to prevent the liquidity drain from tax season from impacting asset prices. While technically neutral, its reintroduction sends a psychological signal to the market: The Fed Put is active.

The announcement is net bullish for risk assets. It represents a “mild tailwind.” By committing to $40B/month, the Fed has effectively placed a floor under banking system liquidity. This removes the tail risk of a Repo Crisis, emboldening leverage.

However, this is a stabilizer, not a stimulus. Because RMP merely replaces the liquidity being drained by the TGA rather than expanding the net monetary base, it should not be mistaken for the systemic easing of true QE.

The Federal Reserve as we know it ends in 2026.

The most important driver of asset returns next year will be the new Federal Reserve, specifically the regime shift brought by Trump’s new Fed Chair.

Hassett has emerged as Trump’s top pick to lead the Federal Reserve (70% odds on Kalshi as of Dec 2). Currently serving as Director of the National Economic Council, he is a supply-side economist and long-time loyalist who champions a “growth-first” philosophy, arguing that with the inflation war largely won, maintaining high real rates is an act of political obstinacy rather than economic prudence. His potential ascension signals a decisive regime shift: moving the Fed away from the technocratic caution of the Powell era toward a mandate that explicitly prioritizes lower borrowing costs to fuel the President’s economic agenda.

To understand the policy regime he would install, let’s evaluate exactly what he has said regarding rates and the Fed this year:

• “The only way to explain a Fed decision not to cut in December would be due to anti-Trump partisanship.” (Nov 21).‏‏‎

• “If I’m at the FOMC, I’m more likely to move to cut rates, while Powell is less likely” (Nov 12).

• “I agree with Trump that rates can be a lot lower” (Nov 12).

• “Expected three rate cuts are a start” (Oct 17).

• “I want the Fed to keep cutting rates aggressively” (Oct 2).

• “Fed cut is in the right direction of much lower rates” (Sep 18).

• “Waller and Trump are right about interest rates” (Jun 23).

On a dovish-to-hawkish scale of 1–10 (1 = most dovish, 10 = most hawkish), Hassett is a 2.

If nominated, Hassett would replace Miran as Fed Governor in January, when Miran’s short term expires. Then in May, Hassett would be elevated to Chair when Powell’s term ends. Powell would then resign his remaining Governor seat after announcing his intent months in advance, per historical precedent, paving the way for Trump to nominate Warsh to fill it.

Although Warsh is currently Hassett’s primary competitor for the Chair nomination, my thesis assumes he is brought into the fold as a force of change. A former Fed Governor, Warsh has been “campaigning” on a platform of structural overhaul, explicitly calling for a “new Treasury-Fed Accord” and attacking the Fed’s leadership for succumbing to the “tyranny of the status quo”. Critically, Warsh argues that the current AI-driven productivity boom is inherently disinflationary, meaning the Fed is making a policy error by keeping rates restrictive.

The New Balance of Power

This setup would give Trump’s Fed a dominant dovish core and a credible path to sway votes on most easing calls, although this is not guaranteed, nor would be the extent of the dovish tilt, as consensus still needs to be reached.

➤ The Dovish Core (4): Hassett (Chair), Warsh (Gov), Waller (Gov), Bowman (Gov).

➤ The “Swayables” (6): Cook (Gov), Barr (Gov), Jefferson (Gov), Kashkari (Minneapolis), Williams (NY), A. Paulson (Philly).

➤ The Hawks (2): Hammack (Cleveland), Logan (Dallas).

However, if Powell were not to resign his seat (extremely high odds he does; outgoing Chairs have always resigned, with Yellen for example resigning 18 days after Powell’s nomination) that would likely be extremely bearish. Such a move would not only block the vacancy needed for Warsh, but would leave Powell as a “Shadow Chair,” a rival center of gravity likely to command more loyalty from FOMC members outside the Dovish Core.

The Timeline: Four Phases of Market Reaction

Given all of the above, the market reaction should play out in four distinct phases:

1. Immediate bullishness on Hassett’s nomination (December/January) and in the weeks after confirmation, as risk assets should love a vocal dovish loyalist in the Chair seat.

2. Growing unease if Powell has not announced his Board resignation within three weeks, since every day without an announcement would then revive the “what if he hangs on?” tail risk.

3. A wave of euphoria the moment Powell announces his resignation.

4. Renewed jitters heading into the first Hassett-led FOMC meeting in June 2026, with the market hanging on every word of FOMC voting members (they speak regularly, giving glimpses into their views and thought processes).

The Risk: A Fractured Committee

Without the “tie-breaker” vote many assume the Chair has (he doesn’t), Hassett must win the debate at the FOMC to secure a true majority. A 7-5 split on every 50 bp move would be institutionally corrosive, signaling to markets that the Chair is acting as a political operative rather than an impartial economist. At the extreme, a 6-6 tie or 4-8 vote against cuts would be a catastrophe. The exact vote counts would show up in the FOMC Minutes three weeks after every FOMC, turning those releases into major market-moving events.

What happens after that first meeting is the great unknown. My base case is Hassett, with 4 firm votes and a credible path to 10, would forge a dovish consensus and execute his agenda.

Corollary: the market will not be able to front-run in full the new Fed’s dovish stance.

Rates repricing

The Dot Plot is a mirage. While the headline September projection for December 2026 sits at 3.4%, this figure represents the median of all participants, including the hawkish non-voters. By denonymizing the dots based on public statements, I estimate the voters’ median is significantly lower at 3.1%.

The picture shifts further when I substitute Hassett and Warsh for Powell and Miran. Using Miran and Waller as proxies for the new regime’s aggressive cut stance, the 2026 voting distribution remains bimodal, but the modes shift lower: Williams/Paulson/Barr at 3.1%, and Hassett/Warsh/Waller at 2.6%. I anchor the new leadership at 2.6% to match Miran’s official projection, though I note his stated preference for an “appropriate rate” of 2.0%–2.5% implies the new regime’s bias is even lower than their dots suggest.

The market partially recognizes this, pricing December 2026 at 3.02% (as of Dec 2), but it has yet to fully price the magnitude of the regime change. If Hassett were to succeed in steering the board lower, the short end of the curve would have another 40bps of repricing to do. Furthermore, if Hassett proves correct about Supply-Side Disinflation, inflation will fall faster than the consensus expects, driving a push for even deeper cuts to prevent passive tightening.

Cross-Asset Implications

While the knee-jerk reaction to a Hassett nomination should be “risk-on”, the precise expression of this regime change is a Reflationary Steepening, betting on aggressive ease at the front end, but pricing in higher nominal growth (and inflation risk) at the long end.

Rates: Hassett wants the aggressive cuts of a recessionary Fed combined with the 3%+ growth of a boom time. If he succeeds, 2-Year yields should collapse to price in the cuts, while 10-Year yields likely remain elevated due to higher structural growth and lingering inflation premiums.

Equities: Hassett views the current policy stance as actively suppressing the AI-driven productivity boom. He would crush the real discount rate, fueling a multiple-expansion “melt-up” in growth stocks. The danger is not a recession, but a bond market revolt, if long-end yields spike in protest.

Gold: A politically aligned Fed that explicitly prioritizes growth over inflation targeting is the textbook bull case for hard assets. Gold should outperform Treasuries as the market hedges the risk that the new regime creates a 1970s-style policy mistake by cutting too deep.

Bitcoin: Under normal circumstances, bitcoin would be the purest expression of the Regime Change trade. However, since the 10/10 shock, it has developed a brutal downside skew, fading macro rallies while crashing catastrophically on bad news, amidst “4-year cycle” top fears and an identity crisis. My view is that Hassett’s monetary policy and Trump’s deregulation agenda would override the dominant self-fulfilling bearish psychology, in 2026.

Technical note: The “Tealbook”

The Tealbook is the Fed staff’s official economic forecast and the statistical baseline for all FOMC debates. It is produced by the Division of Research & Statistics, an army of over 400 economists led by Director Tevlin. Tevlin, like the majority of her staff, is Keynesian, and the Fed’s workhorse model (FRB/US) is explicitly New Keynesian.

Hassett could install a Supply-Sider to run the division (via a Board vote). Replacing a traditional Keynesian modeler (who sees growth as inflationary) with a Supply-Sider (who models the AI boom as disinflationary) would shift forecasts. If for example the staff model predicts 2.5% inflation falling to 1.8% due to productivity, the less dovish FOMC members could feel more comfortable voting for aggressive cuts.

To wrap this up, here is a video of Hassett outlining his supply-side strategy (deregulation, energy production) to generate non-inflationary growth, just for you to put a face to the name.

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