A New ‘Warsh’ Cycle

by Kevin Flanagan, Maggie Lucier of WisdomTree, Inc., 7/24/26

A New ‘Warsh’ Cycle

Key Takeaways

  • Kevin Warsh’s early overhaul of Federal Reserve communication and policymaking suggests investors should prepare for a higher-for-longer rate environment with greater uncertainty around policy signals.
  • As the Fed shifts away from forward guidance and incorporates more real-time economic data, fixed income markets could experience increased volatility, reinforcing the value of strategies that reduce duration risk.
  • Investors seeking income without heightened interest rate sensitivity should consider zero-duration strategies such as USFR, AGZD and HYZD, which are designed to help navigate the new "Warsh" cycle.

On the domestic front, arguably one of the more notable events in 2026 has been the change in Federal Reserve leadership, ushering in a new era for how the U.S. central bank conducts monetary policy and how its actions are communicated to the public. For those investors who were expecting Kevin Warsh to be a ‘rubber stamp’ for rate cuts, they are finding out that the new Chair is putting his stamp on Fed policy in a totally different way.

It is important to recognize that there are two very distinct aspects to a new ‘Warsh’ cycle. Obviously, the most important part of the equation is what Warsh & Co. actually do with respect to the fed funds rate. The other avenue involves the five task forces that he has set-up to examine issues such as, forward guidance, the balance sheet and what data inputs should the policymakers be focusing on.

In terms of forward guidance, investors have already witnessed the Chairman’s plans where the goal is to essentially remove this form of communication to the markets. Some clear-cut examples were the scaled back, just the facts, Greenspan-esque, June FOMC policy statement as well as Warsh’s non-participation in the dot plot. The balance sheet question will take longer to resolve, but the examination of the data the Fed uses to set policy deserves some attention.

The Chairman referred to some of these economic releases as “echoes of history” and acknowledged their flaws…think notable revisions to prior months’ statistics (hello monthly jobs report). Warsh seems to have a preference for including ‘real-time’ data to the decision-making progress. In other words, economic data that doesn’t necessarily go through the federal government’s ‘rinse’ cycle. The bottom line here will probably be a policy input process that includes the usual suspects (monthly employment, CPI etc. reports) plus whatever ‘real time’ statistics the task force recommends.

In our opinion, the lack of forward guidance plus potential new data inputs raises the volatility quotient for the money and bond markets.

Back to the important part of the New ‘Warsh’ Cycle: where are rates headed? It has become increasingly apparent that the curtain has closed for rate cuts. According to the June dot plot, half of the Fed (Warsh not included) saw rate hikes as the next policy step, and even the Chair himself seemed committed to their 2% inflation target and to “fix” five years of misses on inflation. While our base case is for the FOMC to stay on hold for the remainder of 2026, if there’s any tilt going forward, it’s now for a potential rate hike.

See more: Equity Takeaways from Our H2 2026 Economic & Market Outlook