UBS: Warsh's Fed Appointment to End Forward Guidance, Increase Rate Volatility
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UBS expects Kevin Warsh to be confirmed as Federal Reserve Chair before the June FOMC meeting, anticipating a fundamental regime shift away from the Bernanke-era reliance on forward guidance and quantitative easing. Warsh advocates returning to a traditional toolkit centered on the policy rate, reducing gradualism, and shrinking the balance sheet. He believes that publishing dot plots and explicit rate projections exacerbated policy errors in 2021-2022, arguing instead that the Fed should make decisions behind closed doors. UBS expects this institutional shift to produce a disinflationary impulse by raising policy rate expectations and term premiums. Strategically, UBS closed its US 5s30s steepener trade in September 2025 and now expects continued flattening pressure on the curve. With 30-year yields at 4.95%, price-sensitive buyers are expected to return. Gold has already declined approximately 14% since Warsh's nomination in late January. Looking ahead, UBS projects the Fed will gradually increase reserve management purchases from $25 billion per month currently to roughly $40 billion monthly in 2027 and $50 billion in 2028. Warsh also emphasized that the Fed needs to do substantial work evaluating the AI productivity wave, which could influence future policy timing.
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