INSIGHTS

On June 23, 2026

Warsh Regime Begins — From “Dark Arts” to “Age of Enlightenment?”

New Fed Chair Kevin Warsh kicked off his reign with a bang.

The big news included the elimination of so-called “Forward Guidance” at his presser — if not yet on paper — as he will allow the forward guidance of the “Dot Plot” to survive this year before extinguishment. The Fed also issued the shortest post-meeting brief in recent memory. Warsh also aims to bring more science to the “Dark Arts” of rate policy setting by establishing 5 task forces:

1. Fed communication — Less

2. Use of the balance sheet — Less

3. Updated and better data — Replace and improve antiquated data sets

4. Productivity and Jobs — Look at AI impacts and other innovations

5. Inflation Framework — Leave 2% target but adjust methodologies to better achieve goals

At the core, and the phrase mentioned most was a strongly voiced hawkish tilt: “The Committee will deliver price stability." Full Stop.

Our takeaway: This Fed won’t wait too long to see if war-related “transitory” inflation impacts recede at an acceptable pace on their own. The new “dots” show agreement with nine members putting in for an increase by year end, while the rest held and one dissented. We think the stickiness and slow grind lower on inflation will have the bond market testing the new Fed Chair, as it often does with a new Chair, sooner than later. Of note, Warsh didn’t put in his “dots” to emphasize he doesn’t believe in forward guidance.

Major implications from this new regime:

• Interest rate levels normalizing: Despite the expectation Warsh ultimately wants to lower rates (appeasing the administration perhaps), he has historically been a hawk, and that showed last week. We think he will remain firm on that while inflation remains elevated. The Fed itself showed Core PCE (Personal Consumption Expenditures) inflation forecasts moving up from 2.7% to 3.6% for 2026, and not returning to 2% for a long time. 

• Rate decreases largely in rearview mirror: Our long-stated view…inflation is normalizing at somewhere between 2.5% to 3%. That is normal from a long-term perspective (excluding the Great Financial Crisis). At that level, a 10-year Treasury around 4.5% is also normal. If we see inflation moving in the right direction toward 2.5%+ stability, there is room for some easing and lower rates in short to intermediate maturities, but we do not expect the long end to follow. Today’s 30 basis points 2-year to 10-year Treasury spread will not be the norm — and another reason we like shorter duration strategies.

• Elevated rate volatility: The potential end of the war may cap how high rates may move but monkeying around with the balance sheet, new frameworks and less transparency are not a cocktail for calm. The bond market is leading the Fed now anyway, but at least the dots confirm the Fed is paying attention! Does less transparency lead to a new “Age of Enlightenment?” One can only wonder what the long end might have done with this new hawkish tilt with zero forward guidance. Calmer response, likely not. Monetary policy is a blunt instrument, and improvements can help but we fear won’t turn a sledgehammer into a scalpel.

• Invest in the sweet spot — add lower volatility yield: As volatility remains part of the framework, the path of disinflation remains cloudy and the yield curve remains relatively flat, we believe allocating to actively managed shorter duration strategies that capture the lion share of yield in the market with the potential of dramatically mitigating duration risk of longer strategies. Yield in this part of the curve has the potential to benefit as the one-and-done hike cycle ends and then reverses course as inflation begins to decline toward our target — albeit we believe at a slower pace and higher amplitude than the market expects. Short to intermediate duration also compares favorably to ultra short paper/cash where there is little duration and thus exposure to lower yields as the Fed stops and reverses. As we look out over a 12-month horizon, we see a path of bullish curve steepening (long rates stuck higher, while remaining more volatile) and continue to favor the short to intermediate "sweet spot" on the yield curve as the place to be for the best risk-adjusted returns for the foreseeable future. We hope the new Fed can deliver on a new “Age of Enlightenment,” but prefer to be positioned for performance today rather than waiting in the dark.

CRN: 2026-0622-13556 R