A portrait can convey more than just one story.

Take, for example, Emanuel Leutze’s 1851 painting “Washington Crossing the Delaware.” It vividly frames one of the most iconic moments of the American Revolution, depicting the voyage at dawn, beneath the silhouette of a rising sun — yet historians believe the actual crossing occurred at night during a violent winter storm. The boat carries 13 men of varying backgrounds and national origins, alongside an American flag not adopted until 1777. Some scholars speculate Leutze, a German-American painter, intended the work to extol the value of freedom and democracy to audiences back in Europe.

The Federal Reserve is entering a similarly layered moment. With Kevin Warsh confirmed as Fed chair pending Jerome Powell’s departure from that post on May 15, the transition may appear straightforward on the surface: The Fed is on hold. At its April meeting, the Federal Open Market Committee (FOMC) kept the federal funds target rate at 3.5% to 3.75% for a third consecutive meeting, extending a pause that followed three quarter-point cuts late in 2025.

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Beneath the surface, however, the picture is a bit more nuanced. Four members of the committee emerged from the April meeting with dissenting votes, the most in a single FOMC meeting since 1992, when Warsh was 22 years old. Governor Stephen Miran wanted a quarter-point rate cut. But bank presidents Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas objected to something subtler: a line in the policy statement they read as an implicit easing bias. Rather than signal the next move would be a cut, all three argued the committee should acknowledge that the next change could go either way — up or down — given rising energy prices tied to the war in Iran and persistent inflation above the Fed’s 2% target.

Powell has also decided to stay on as a Fed governor, perhaps until January 2028. That hasn’t been done since 1948, and it could make Warsh’s attempts at achieving consensus on monetary policy a more difficult task. The Senate confirmed Warsh on May 13 by the slimmest margin in history, which some commentators have taken as a harbinger of challenges to come.

For investors, these variances matter. The bigger question is not simply whether the Fed cuts rates, but how new leadership may define “tight” monetary policy in the coming years. That distinction could influence stocks in at least three important ways:

— Higher-for-longer rates could pressure stock valuations.

— Balance-sheet reduction may matter as much as rate cuts.

— Leadership within the market could broaden.

Higher-for-Longer Rates Could Pressure Stock Valuations

If the Fed prioritizes inflation credibility over rapid easing, Treasury yields may remain elevated, putting pressure on richly valued growth stocks and increasing the importance of earnings quality and free cash flow. A 2026 National Bureau of Economic Research paper found that changes in “pure discount rates” explain roughly 80% of cross-country valuation changes since 1990, reinforcing the idea that higher rates can pressure equity valuations even when economic growth remains solid.

Some bond traders have left the door open for a rate hike in the coming 12 months. As of early May 14, the CME FedWatch tool shows traders have priced in about a 57% probability of at least one rate hike within the next year.

“While the Fed remains on hold for now, we believe the bar for further rate hikes is significantly higher than for cuts, given underlying softness in the labor market. Despite a stable unemployment rate, payroll growth has been effectively flat over the past year and concentrated in a narrow set of sectors, including health care and education,” says Jay Jacobs, U.S. head of equity ETFs at BlackRock.

[Read: 8 High-Return, Low-Risk Investments for Retirement]

Balance-Sheet Reduction May Matter as Much as Rate Cuts

Many investors tend to focus on Fed rate cuts, but a more aggressive reduction in the Fed’s balance sheet could quietly tighten liquidity even if rates stay unchanged.

The Fed’s balance sheet currently holds approximately $4.4 trillion in U.S. Treasury securities and $2 trillion in mortgage-backed securities (MBS). If the Fed chose to allow some of these assets to mature (or “roll off”), this would reduce the amount of excess liquidity in the financial system.

Scott Helfstein, head of investment strategy at Global X, comments, “Warsh believes that the Fed should play a smaller role in the economy and will likely look to shrink the balance sheet while keeping rates low. That would mean an increased focus on corporate fundamentals, which are forecasted to deliver strong growth and profitability this year.”

Leadership Within the Market Could Broaden

A less accommodative Fed environment may favor sectors tied to durable cash flow, dividends and pricing power, including financials, industrials, energy and value-oriented companies, while speculative corners of the market that benefited from ultra-low rates could face renewed pressure.

History offers at least a couple of reference points. During the peak of rate hikes in 2022, the Morningstar US Growth Index lost 36.7%, its worst performance since the financial crisis in 2008. The Morningstar US Value Index, on the other hand, ended the year down less than 1%. Additionally, value stocks have outperformed growth stocks by 4.4% annually in the U.S. since 1927 through the end of 2022, according to data from Dimensional Fund Advisors.

The Crossing Ahead: Warsh’s Transition to Fed Chair

There is a final irony worth noting. Warsh has said publicly that rates can come down significantly, and yet markets, weighing persistent inflation, rising energy prices and a divided committee, have priced in meaningful odds of a hike. The official framework in view and the underlying reality point in different directions.

That tension may be the most useful signal available to investors right now. Leutze’s painting endures because it captures something true about consequential moments: The destination is uncertain, the weather is worse than it looks, and the people in the boat don’t all agree on what comes next.

The Fed’s leadership transition may be precisely that kind of crossing. And the investors who navigate it best will be those who look past the surface.

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After Powell: How a New Fed Chair Could Impact Stocks originally appeared on usnews.com