On My Mind: One Flew Over the Dove’s Nest

The Warsh Fed is establishing a hawkish regime that should keep rates and bond yields elevated while making the policy outlook more volatile.

• The FOMC’s unanimous rate increase removed “a dose of accommodation,” and the article reads Warsh’s language as pointing to one or two additional hikes in this cycle.
• Warsh described the US economy as strengthening, employment as having limited downside risk, and inflation as persistently too high, with upside risks from commodity prices and geopolitical turmoil.
• The Fed rejects formal forward guidance but is communicating a policy bias while retaining flexibility to respond to new data; it also intends to focus on trends rather than individual inflation, employment or growth releases.
• Long-term yields remain exposed to the strength of the economy, competition for capital from artificial-intelligence investment and large Treasury funding needs, while the chart shows trend core PCE remaining closer to 3% as of September 21, 2026.
• Markets have moved from pricing Warsh as a dove to pricing as many as three hikes into next year, but the author sees one hike as highly likely and considers further hikes too uncertain to predict.

Takeaway: Investors should expect possible yield-curve steepening and avoid aggressive duration, focusing instead on income, disciplined credit exposure and selective investment-grade, mortgage-backed, asset-backed, commercial mortgage-backed and emerging-market opportunities while recognizing that inflation and fiscal risks may keep policy restrictive.