Today, as we reviewed all six portfolios, one event kept surfacing across every macro book: Kevin Warsh is about to be sworn in as the 17th chairman of the Federal Reserve, the US central bank that sets the interest rate for the entire dollar economy. Every portfolio we manage, from the cautious Preservation book to the aggressive Performance book, will be affected by the decisions this one person makes over the coming years. This is the kind of structural change that matters far more than any single inflation number or jobs report.
The Federal Reserve chair controls the pace of interest rate changes, which ripple through every asset class. When the Fed raises rates, borrowing becomes more expensive, which slows the economy and tends to push stock prices down and bond yields up. When the Fed cuts rates, the opposite happens: money flows more freely, asset prices tend to rise, and risk appetite grows. The chair does not act alone (there is a committee of twelve voting members called the FOMC, the Federal Open Market Committee), but the chair sets the agenda, frames the discussion, and historically gets their way on almost every vote. Think of the chair as the editor-in-chief of a newspaper: others write articles, but the editor decides what goes on the front page.
Warsh replaces Jerome Powell, who navigated the post-pandemic inflation surge and the Iran-related oil shock. Warsh is widely described as a monetary hawk, which means he leans toward keeping interest rates higher to fight inflation, even if it slows economic growth. This matters right now because inflation has been running above the Fed's 2% target for over five years straight, the longest streak since the 1970s, and oil prices from the Iran conflict are pushing costs higher still. A hawkish chair facing persistent inflation is more likely to raise rates than cut them. Bond markets have already priced this in: rate hike probabilities now exceed cut probabilities for every major central bank globally.
What makes Warsh unusual is his personal financial history. Public disclosures show he holds positions in more than twenty crypto-related assets, including Solana, dYdX, Compound, and even Polymarket (a platform where people bet on real-world outcomes using crypto). This creates a tension that previous Fed chairs never faced. On one hand, Warsh is expected to be friendlier to crypto regulation than Powell was. On the other hand, his hawkish stance on rates directly undermines the environment where crypto thrives. Crypto assets, especially the more speculative ones, tend to perform best when money is cheap and plentiful. Higher rates drain that liquidity. So the new chair might write crypto-friendly rules while simultaneously making the macro environment harder for crypto prices. Our Convictions and Autopilot portfolios will need to navigate this contradiction carefully.
For the Compass portfolio, which follows the macro regime framework developed by economists Charles Gave and Didier Darcet, the Warsh appointment reinforces what the regime signals already show. The United States is sitting in an inflationary bust quadrant, where growth is weakening but prices keep rising. A hawkish Fed chair in an inflationary bust is textbook for continued dollar pressure and continued strength in hard assets like gold. Gave's framework, built over four decades of studying how different asset classes perform in each of the four economic regimes, suggests that the last thing you want to own in an inflationary bust is long-duration government bonds. Warsh's likely rate hikes would push bond prices down further, which is exactly what the framework predicts.
For the Classical portfolio, our passive 60/40 benchmark, the Warsh era could be challenging. The 60/40 model (60% stocks, 40% bonds) depends on bonds going up when stocks go down, providing a cushion during market stress. But when inflation is persistent and rates are rising, both stocks and bonds can fall together. This happened in 2022 and could happen again if Warsh hikes into an already-slowing economy. The Classical portfolio exists precisely to test whether this conventional approach still works in the current regime. The answer so far is yes (it is up 1.4%), but the real test comes when the new chair faces his first crisis.
Warsh's first FOMC meeting is expected in June. The core PCE inflation number coming out this Thursday will be the first major data point he inherits. If inflation is hotter than expected, markets will immediately price in a faster rate hike timeline, which would be negative for stocks and crypto alike but potentially positive for the dollar and cash-like positions. If inflation cools, it buys Warsh time and keeps the current equilibrium intact. But the larger point is that no single data release changes the structural reality: the person setting the direction of monetary policy for the world's reserve currency has changed, and that person's instincts lean toward tighter money. That background hum will shape every portfolio decision we make for the next several years.
What could invalidate this analysis? If the Hormuz peace deal materializes and oil prices collapse back to pre-crisis levels, inflation could fall fast enough that even a hawkish Warsh finds no reason to hike. In that scenario, markets would rally broadly and the distinction between a hawk and a dove at the Fed would matter much less. We are not positioned for that outcome today, but we are watching for it.