Americans are one step closer to the Federal Reserve’s historic shake-up on May 15 — but millions of retirees aren’t ready for what’s coming

Many also expect that he could move to cut interest rates (the first Fed rate cut since December) if he takes over when current chair Jerome Powell's term ends on May 15.

That latter expectation has raised concerns, however, given that Warsh appears to be a hawk who turned into a dove, once advocating for higher interest rates but now championing lower ones in a policy shift that more aligns with the wishes of the same president who attacked Powell multiple times for not lowering rates.

Though he insists that he'll be "an independent actor if confirmed," Warsh's shift on interest rates and his refusal to acknowledge that Trump lost the 2020 election to Joe Biden earned him the moniker of Trump "sock puppet" from Democrat Senator Elizabeth Warren (3).

And while a Fed shake-up concerns all Americans, one cohort in particular could see their financial fortunes shift dramatically: retirees.

How Fed changes could impact retirees

While Federal Reserve interest rate cuts can help lower borrowing costs, stimulate business activity and placate a president desperate to boost his poll numbers, retirees counting on income from investments aren't as bullish.

In January, 64% of retirees surveyed by Clever Real Estate said that the U.S. "faces a retirement crisis," with 48% reporting that they can't "financially sustain their current quality of life for the rest of their lives." Almost a quarter of retirees said that they can't sustain it for another year (4).

In a separate survey by retirement expert John Stevenson, 58% of retirees polled said "lower interest rates are detrimental to people who have saved responsibly" while 45% "fear inflation will outpace their income if rates fall and yields decline (5)."

An interest rate cut paired with the current 3.26% inflation (6) and the skyrocketing costs of energy and gasoline — as well as food, medical expenses and housing that remain up year-over-year (7) — would likely erode purchasing power for many retirees, worsen the affordability crisis and, broadly, prove concerns about stagflation correct.

Still, J. Sebastián Leguizamón, the director of Western Kentucky University's Center of Applied Economics, told AARP that the effects of a rate cut on retirees is "mixed and very portfolio-specific" and that "it's better to think in terms of trade-offs that depend on debt levels and how a retiree's assets are allocated (8)."

For example, they note that while those with money in CDs, savings or money-market funds will more likely see declining yields with a rate cut, those paying down mortgages, lines of credit or loans — or with a stock-heavy portfolio — could get a boost.