Original authors: @Globalflows, @aleabitoreddit
Compiled by: Peggy, BlockBeats
Editor's note: The appointment of Kevin Warsh as the new chairman of the Federal Reserve signals more than just a personnel change; it indicates a shift in the very logic of market pricing. Under Warsh's framework, inflation is reinterpreted as a problem of fiscal irresponsibility and government inefficiency, while AI is seen as a key tool for reducing costs, enhancing productivity, and reshaping governance capabilities.
As AI systems like Palantir are being deployed in areas such as federal spending audits, housing finance, and healthcare reimbursements, this institutional shift is moving from concept to execution, and is beginning to manifest in the market as structural differentiation and repricing.
With AI and fiscal discipline becoming the main policy lines, which assets will gain new pricing premiums, and which business models will face systemic reevaluation, are questions the market must answer. The following is the original text:
Kevin Warsh has been appointed as the new chairman of the Federal Reserve, and the signals this news sends go far beyond a mere personnel change; it heralds a profound shift in the global monetary policy paradigm and the AI arms race. The connection between these two is much closer than most people realize.
AI is becoming the only asymmetric leverage point that will determine the future landscape, and Warsh's appointment is a systemic arrangement centered around this core goal.
Discussions surrounding him, such as "Will he cut interest rates?", "Is he hawkish or dovish?", "How will he handle the Fed's balance sheet?" are certainly important, but these questions overlook a crucial fact: a larger institutional transition is already underway.
What truly matters is not the short-term policy orientation, but why it is Kevin Warsh, and how he fits into this emerging new system. Understanding this will be the most important judgment variable as we move towards 2026.
From Personnel Appointment to Institutional Signal: Why Warsh?
Warsh is not a "policy technocrat" in the traditional sense. He has long been viewed as someone with a systematic understanding of global capital flows, financial market structures, and institutional incentives.
More importantly, he is not an isolated individual.
Warsh has maintained close ties with Druckenmiller, Bassett, and Karp, all of whom have deep connections with Palantir. Druckenmiller has publicly praised Warsh's understanding of global capital flows and financial market structures on multiple occasions.
In an interview with Bloomberg, Druckenmiller even referred to Warsh as his "trusted advisor."
But this connection goes beyond that: Druckenmiller himself is an early investor in Palantir and has a close relationship with its co-founder and CEO, Alex Karp. (Related reading: Interview link)
Why is this important? Because Kevin Warsh himself has a direct connection to Palantir.
In 2022, Alex and Kevin recorded an interview discussing how the world is moving towards greater disorder and higher levels of complexity.
As they stated in the interview: "Tomorrow, complexity will experience a leap."
This is not a hollow statement of technological optimism, but a forward-looking judgment that the ways of national governance, fiscal systems, and macro stability are about to change.
Palantir: The "Execution Layer" of Institutional Transition
To understand Warsh, one cannot avoid Palantir.
Palantir is critical because the company is gradually becoming the "operational hub" of the U.S. federal government's anti-fraud system. Currently, 42% of Palantir's revenue comes from the U.S. government, and its technology is being deployed across multiple government departments to identify and curb large-scale fraud and excessive, inefficient government spending.
Why is this important?
Because Palantir is being used to systematically address excessive waste and various fraud issues in government spending. Its technology is being implemented in multiple federal agencies, becoming a key tool for identifying abnormal cash flows and cleaning up redundant expenditures.
SBA: From Single State to Nationwide "Zero Tolerance" Liquidation
A representative example comes from the U.S. Small Business Administration (SBA).
While investigating loan programs during the pandemic, the SBA discovered large-scale violations in Minnesota: involving 6,900 borrowers, approximately 7,900 PPP and EIDL loans, totaling around $400 million.
In this context, the SBA introduced Palantir and explicitly stated that the investigation would expand from a single state to nationwide as part of a "zero tolerance" systemic anti-fraud initiative.
Relevant documents show that Palantir, through its Foundry platform, integrates government data scattered across different agencies and systems, tracks the investigation process, and prioritizes leads based on risk levels. This means that Palantir is no longer just providing analytical tools but is deeply embedded in the federal government's audit and anti-fraud workflows.
Fannie Mae: Systematic Pre-Audit of the Housing Finance System
A similar logic is unfolding in the housing finance system.
Fannie Mae has officially established a partnership with Palantir for AI anti-fraud technology, integrating Palantir's AI capabilities into its crime detection system to identify previously hard-to-detect fraud patterns within millions of data sets, aiming to reduce future losses in the U.S. mortgage market.
The context of this collaboration is particularly critical: Fannie Mae manages over $4.3 trillion in assets and plays a foundational role in the U.S. housing finance system, covering nearly a quarter of single-family home mortgages and 20% of multi-family home mortgages. Fannie Mae emphasizes that this move will enhance the safety and soundness of the entire mortgage market; Palantir CEO Alex Karp has stated that this collaboration will "change the way America combats mortgage fraud," bringing anti-fraud capabilities directly to the system level.
What is the "connection" between them? The answer lies in the fact that the federal government is increasingly deploying Palantir's anti-fraud capabilities across different fields.
This indicates that Warsh's advocated "fiscal inflation theory" is not merely an academic concept but is being translated into executable, auditable, and accountable government capabilities through AI systems like Palantir.
I find one phenomenon particularly interesting: Humana, a company with over $100 billion in government contracts, is one of the largest contractors for the government, yet its stock price has been weakening while Palantir's continues to rise.
Whether there is a direct correlation between these two stocks is debatable, but this relative performance itself is noteworthy. Humana's business model largely relies on the high complexity of the government healthcare reimbursement system—historically difficult to audit on a large scale and systematically. In contrast, Palantir is being increasingly deployed to bring transparency to precisely these types of projects.
This differentiation may be releasing a more macro signal: the market is repricing two types of companies, one that benefits from opacity and another that provides visibility and transparency. If AI-driven regulation and auditing ultimately become the norm for federal fiscal spending, then this structural change is likely to occur not only in the healthcare industry but across many more sectors.
Humana Inc. can be said to be the single largest publicly traded company exposed to U.S. government healthcare spending, particularly centered around Medicare Advantage. Compared to its peers, Humana has the highest proportion of revenue and profit directly tied to the Medicare reimbursement formula, making it highly sensitive to rate adjustments, audits, and policy changes from CMS, with almost no comparable counterparts.
When AI Meets Inflation: Why This is a Systemic Shift
Kevin Warsh has been calling for a "regime change" at the Federal Reserve for over a decade. But what does this really mean?
The answer begins with a completely different theory of inflation.
The dominant inflation models within the Federal Reserve today are largely based on the 1970s and have been carried forward to the present. These models suggest that inflation arises from an overheating economy and rapidly rising labor wages.
Warsh completely denies this explanation. In his view, the root of inflation does not lie in wages but in the government itself—when the government prints too much, spends too much, and lives too "comfortably," inflation will occur.
This viewpoint is not a subtle expression but a position he has articulated multiple times.
This is the true "regime change." It is not about whether the Federal Reserve is hawkish or dovish, nor whether interest rates are raised or lowered by 25 basis points. The key lies in completely rewriting the Federal Reserve's inflation analysis framework, shifting from a theory that attributes inflation to workers and economic growth to one that holds government spending itself accountable.
Things start to get interesting from here.
Warsh is also highly optimistic about AI. In the same interview, he pointed out that AI will lower the costs of almost everything, and the U.S. is at the starting point of a productivity explosion. He believes that the current Federal Reserve does not truly grasp this, but is instead constrained by outdated models, misjudging economic growth as inflation.
Thus, on one hand, Warsh views AI as a structural deflationary force that will continuously lower costs throughout the economic system; on the other hand, he believes that the true source of inflation is excessive government spending and fraudulent activities—large amounts of money are injected into the system without generating corresponding real output.
These seemingly different judgments ultimately converge at one point: Palantir.
In fact, this institutional shift is not only reshaping the Federal Reserve itself but also rearranging the entire framework through which we understand interest rates, the dollar, and global capital flows.
If Warsh's judgment is correct, that inflation primarily stems from fiscal expansion rather than supply-side shocks, then the traditional macroeconomic playbook will become completely ineffective.
In this framework, lowering interest rates no longer signifies a dovish stance; rather, it indicates that decision-makers are confident that fiscal discipline and AI-driven efficiency improvements are taking on the primary task of curbing inflation. The Federal Reserve is no longer the opposite of fiscal constraints but rather its collaborator.
A Federal Reserve that refuses to monetize fiscal deficits while actively supporting the reduction of fraud and the compression of spending will create a monetary system that is entirely different from the environment priced by the market over the past decade.
On a global level, this is equally significant. If the U.S. can prove that AI can be scaled to enhance fiscal accountability, including reducing waste, identifying fraud, and streamlining government operations, then this model will either be emulated by other developed economies or become something they must compete against.
The so-called AI arms race is not just about chips or model capabilities; it is more about who can reshape the relationship between government and the economy with AI first.
Moreover, there is the deflationary force brought by AI itself. Warsh's position is very clear: he believes AI will lower costs throughout the economy, and we are on the eve of a productivity explosion, although the current Federal Reserve has not yet truly realized this.
If his judgment holds, we will enter an unprecedented phase: structural forces are deflationary (productivity improvements brought by AI), while the sources of inflation are directly targeted and suppressed (government waste and fraud). This will create an investment environment that has not been seen since the 1990s.
The old frameworks of thinking—hawkish vs. dovish, rate hikes vs. cuts, risk appetite opening vs. closing—are insufficient to explain the changes that are occurring.
The real question in 2026 is not what level the federal funds rate will land at, but whether this alliance truly has the capability to execute its grand vision.
How Will the Market Be Repriced After Institutional Implementation?
Kevin Warsh will become the next chairman of the Federal Reserve. The market may instinctively categorize him as a "hawkish" figure, but this understanding is inaccurate. As we enter 2026, Warsh's policy stance will present more complex and structural characteristics.
Here are the main policy directions he may promote, along with the potential impacts of these changes on different asset classes:
- AI / Semiconductors ($NVDA, $MU): Extremely bullish
- Metals (Silver, Gold): Extremely bearish
- Crypto Assets ($BTC, $CRCL): Superficially contradictory, but actually bullish
- Banking and Financial Sector ($JPM, $BOA): Bullish
- Housing and Real Estate: Divergent / Uncertain
- Renewable Energy: Bearish
- Small-Cap Stocks ($RUT): Bullish
- Overseas Stocks:
- Japan, South Korea: Relatively resilient
- Emerging Markets (EM): Extremely pressured
- China and Hong Kong: Bearish
- Europe ($VGK, $EZU): Cautiously optimistic
AI / Semiconductors (From NVIDIA to Micron): Extremely Bullish
Warsh is clear and consistent in his bullish stance on AI.
At the end of 2025, he publicly stated that AI is a strong structural "de-inflation" force. In his view, the productivity leap brought by AI can allow the economy to maintain high growth without necessarily pushing up inflation.
It is this judgment of "productivity prosperity" that provides a solid theoretical basis for his support of interest rate cuts even when the economy has not significantly cooled down.
("The Fed's Leadership Failure," The Wall Street Journal, November 16, 2025)
This sharply contrasts with the market's previous stereotype of him—historically, Warsh has often been seen as a rigid, anti-inflation hawk emphasizing high interest rates.
Now, he not only supports interest rate cuts but also explicitly hopes to accelerate the implementation and expansion of AI.
Metals (Silver, Gold): Extremely Bearish
Gold has long been viewed as a hedge against a weakening dollar and monetary overexpansion. However, under Warsh's policy framework, this logic is being weakened.
He advocates for shrinking the Federal Reserve's balance sheet and ending "money printing-style easing," which directly undermines the core rationale for holding gold. At the same time, a strong dollar further raises the costs of metals for international buyers.
It should be noted that the 33% intraday drop in silver was primarily driven by technical factors such as margin adjustments and subsequent liquidations; the influence of the new Federal Reserve chairman may only be a secondary driver.
Crypto Assets ($BTC, $CRCL): Superficially Contradictory, but Actually Bullish
Warsh has stated, "If you are under 40, Bitcoin is your new gold." In his view, Bitcoin is a legitimate store of value, representing a generational shift from physical precious metals to digital assets.
He also highly praises blockchain, calling it "the latest and most disruptive foundational software," and believes that the U.S. must maintain a leading position in this field to sustain long-term competitiveness.
But the question arises: if his stance is bullish, why are prices under pressure? The reason lies in the market's gradual realization that while Warsh supports lower policy rates, he simultaneously insists on balance sheet reduction and monetary discipline.
This has raised a new concern—perhaps we are entering an era of "rate cuts without accompanying QE." Loan costs may decrease, but the "liquidity flood" that has pushed Bitcoin to historical highs multiple times may not reappear.
Thus, a tension has formed: Warsh is optimistic about crypto assets in terms of technology and long-term trends, but his monetary constraints may suppress liquidity premiums in the short term.
Banking and Financial Sector: Bullish
With his background at Morgan Stanley and long-standing criticism of the "functional expansion" of regulation, Warsh has always been a preferred policy choice for the banking system. The market generally expects him to roll back some complex banking capital regulatory requirements (such as Basel III).
Analysts believe this will significantly benefit regional and smaller banks, as more capital will be released for real credit expansion.
Housing and Real Estate: Divergent
Warsh advocates for a substantial reduction in the federal funds rate, which will directly lower adjustable-rate mortgages (ARMs) and construction financing costs.
However, the risk is that he explicitly opposes the Federal Reserve holding approximately $2 trillion in mortgage-backed securities (MBS). Many economists warn that even if other rates decline, the 30-year fixed mortgage rate may still be pushed up to the 7%-8% range.
Renewable Energy: Bearish
Warsh plans to have the Federal Reserve withdraw from global climate-related organizations (such as the "Green Finance Network") and terminate climate stress tests imposed on banks.
During Powell's tenure, the Federal Reserve had encouraged banks to incorporate climate considerations into credit through regulatory guidance. Warsh hopes to end this mechanism, effectively removing the "policy tailwind" that green projects previously enjoyed.
Small-Cap Stocks: Bullish
Warsh has repeatedly emphasized that the Federal Reserve should refocus on the true drivers of the economy—small businesses and entrepreneurs—rather than "the overly protected large institutions on Wall Street."
He expects to promote a systematic rollback of banking regulation, which will directly benefit small-cap stocks. By alleviating the regulatory burden on smaller banks, the channels for small businesses to obtain financing will be significantly broadened.
Overseas Stocks: Divergent
Warsh's policy mix may create significant divergence globally: one type of economy will benefit from U.S. growth and AI investment; another type will be more easily suppressed by a strong dollar and tightening global liquidity.
Japan / South Korea (such as Samsung, SK Hynix): Relatively resilient, as they hold key entity bottlenecks in the AI and robotics industries, which are the productivity engines that Warsh values.
In this context, a strong dollar becomes a competitive tool for them:
- Export Effect: Contracts are often denominated in dollars, significantly amplifying profits after currency conversion;
- U.S. Perspective is "Cheaper": A stronger dollar makes Japanese robots and Korean chips more price-attractive to U.S. companies, accelerating productivity improvements while enhancing the profitability of these companies.
China:
A strong dollar will continue to exert pressure on the renminbi, limiting the operational space for monetary policy.
Emerging Markets:
The appreciation of the dollar significantly raises the burden of dollar-denominated debt, exacerbating risk exposure.
Europe:
A weaker euro benefits exports, but rising energy import costs pose structural constraints.
Last Friday, silver and gold plummeted, triggering hedging and de-risking behaviors, leading to a temporary tightening of liquidity.
The market may still simply categorize Warsh as a "traditional hawk," but from his recent statements, he appears closer to a "dovish figure with AI as a premise" in the short term.
The current market is digesting a new combination scenario: interest rate cuts occurring alongside balance sheet contraction.
In this framework, trading logics ranging from the AI mainline to small-cap stock growth are still considered to have continuity.
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