Author: vivienna.btc

—— Historical Coordinates, Inflation Analysis, and the Medium to Long-Term Repricing of Major Global Asset Classes

Abstract

On April 21, 2026, Kevin Warsh clearly outlined his policy roadmap in the Senate Banking Committee hearing for if he were to become Chairman of the Federal Reserve——a dual approach of "Quantitative Tightening (QT) and Interest Rate Cuts in Parallel," along with a structural removal of the Average Inflation Targeting (AIT) introduced since 2020. This is not a mere technical parameter adjustment but a reconstruction of the monetary policy paradigm, driven by a deep-seated logic of "returning monetary sovereignty" in the context of de-globalization: the Fed retreating from its role as a "global central bank" back to its essence as the central bank of the United States. Utilizing the InflationMonitor's IPS factor framework (IPS = P+E+D+F+N) as an analytical tool, and combining historical coordinates of the evolution of the Fed framework since 1979, this paper assesses the directional impacts of Warsh's framework on four asset classes: global gold, US dollar, US treasury bonds, and US stocks over the next 1–3 years. The core conclusion: gold emerges as the most certain medium to long-term bullish asset across three scenarios; the dollar undergoes structural weakening with bi-directional fluctuations; the risk of US treasury duration systemically increases; and US stocks experience short-term bullishness followed by long-term bearishness with increasing divergence.

Keywords: Warsh framework, QT, AIT, monetary sovereignty, IPS factor model, fiscal dominance, asset repricing

Table of Contents

1. Introduction: Policy Signals from Warsh's Hearing

2. History of the Evolution of Federal Reserve Monetary Policy Framework: Six Phases

3. The Five Pillars of Warsh's Framework (Extracted from the Hearing)

4. IPS Factor Framework: Establishing Logic and Methodology

5. The Reshaping of the IPS Factor Model by the Warsh Framework

6. Medium to Long-Term (1–3 Years) Repricing of Four Asset Classes: Three Scenario Analysis

7. Key Observational Indicators and Trigger Conditions

8. Risks, Boundaries, and Failure Paths of Assumptions

9. Conclusions and Portfolio Recommendations

1. Introduction: Policy Signals from Warsh's Hearing

On the morning of April 21, 2026, Kevin Warsh systematically articulated three policy positions at the nomination hearing in the Senate Banking Committee:

1. Rebuilding Credibility: "The high inflation of the past few years has weakened the Fed's credibility in inflation management," citing Friedman’s "The Tyranny of the Status Quo," emphasizing that "adhering to the status quo has become particularly destructive in a rapidly changing world."

2. Reconstruction of the Inflation Analysis Framework: Employing more representative inflation indicators, focusing on potential trends, reducing reliance on dot plots, and incorporating the AI wave into inflation outlook judgments.

3. Balance Sheet Reform: Opposing the normalization of QE, advocating for gradual balance sheet reduction; QE should only serve as an unconventional tool at the zero lower bound; the Fed should exit quasi-fiscal functions and not hold large-scale long-duration assets for long periods. Current holdings of approximately $2 trillion in MBS will become a priority for reduction.

4. Repositioning Interest Rate Policy: No commitment to rate cuts but a clear inclination; the key assertion is "rate cuts support 'Main Street' more than QE supports 'Wall Street'"; the coordination of interest rate policy and balance sheet policy.

The greatest divergence from market expectations lies in the combination of points 3 and 4: most analysts previously bundled "dovish" with "expansionary" and "hawkish" with "tightening," whereas Warsh decouples the two into a new combination of "tight quantity + loose price"—balance sheet reduction (tight quantity) suppresses the valuation expansion of financial assets, while rate cuts (loose price) support the decline in real financing costs. This decoupling results in asymmetric and nonlinear impacts on the four asset classes; the remainder of this paper elaborates on this asymmetry.

2. History of the Evolution of Federal Reserve Monetary Policy Framework: Six Phases

To understand the radical nature of the Warsh framework, it must be contextualized within a 46-year evolution timeline.

2.1 Volcker Era (1979–1987): Monetary Targeting + Credibility Building

On October 6, 1979, during the "Saturday Night Special," Volcker announced the operational target of money supply (M1), with federal funds rates once soaring to 20%; the US experienced two consecutive recessions (1980, 1981-82). The cost: an unemployment rate of 10.8%, but by 1983, CPI fell from 14.8% to 3%. The Fed's anti-inflation credibility was solidified in this recession, becoming a cherished legacy for all subsequent Fed Chairs over the next 40 years.

2.2 Greenspan Era (1987–2006): Implicit Inflation Targeting + Greenspan Put

The monetary targeting was quietly abandoned, and the Taylor Rule became the operational framework. Greenspan established fine guidance over market expectations but also created an intervention inertia akin to a "put option" during liquidity events in 1987 (Black Monday), 1998 (LTCM), and 2001 (internet bubble)—inaction during bubble periods and significant easing afterward. This laid the groundwork for future asymmetries. Independence matured operationally, but the Fed began to floor asset prices.

2.3 Bernanke Era (2006–2014): QE + Dual Mandate Expansion

After the 2008 subprime crisis, under the constraints of the zero lower bound (ZLB), the Fed initiated QE, expanding its balance sheet from $900 billion to $4.5 trillion. In 2012, it formally adopted a 2% inflation target. Key changes included:

• Expansion of tools: regularization of forward guidance, QE, and Operation Twist.

• Expansion of functions: macroprudential regulation, financial stability, and oversight of systemically important financial institutions…… pushing the boundaries of the Fed beyond pure monetary policy.

These two expansions are precisely what Warsh identifies as needing an "exit."

2.4 Yellen-Powell First Half (2014–2020): Unfinished Balance Sheet Reduction

From 2015 to 2018, the Fed initiated rate hikes along with moderate balance sheet reduction, shrinking the balance sheet from $4.5 trillion to $3.8 trillion. However, in Q4 of 2019, the repo market rate spiking event revealed a structural increase in the banking system's demand for reserves, forcing the Fed to restart balance sheet expansion (publicly termed "not QE"). The revelation from this event may be directly insightful for Warsh's reform: balance sheet reduction must work in concert with financial regulation (especially eSLR), repo tools, and treasury issuance schedules; otherwise, it risks triggering liquidity accidents.

2.5 Powell Second Half (2020–2025): AIT and Framework Failure

At the Jackson Hole meeting in August 2020, Powell announced the Average Inflation Targeting (AIT): tolerating moderate inflation overshoots after extended periods below 2% in order to meet long-term average targets. The two core assumptions of this framework are——

• The asymmetric risk of inflation still leans towards the downside;

• Inflation expectations "anchored at 2%" exhibit resilience;

—— these were simultaneously debunked under the compounded shocks of fiscal expansion + supply shocks + surging energy prices in 2021-2022. Core PCE once touched 5.6%, and the Fed raised rates by 425bps throughout 2022 but still failed to keep pace.

Structural problems of AIT:

Loss of credibility is asymmetric: a single misjudgment tends to erode credibility more than three correct decisions accumulate. This is precisely Warsh’s direct target.

2.6 Next Phase Represented by Warsh (2026–?): Return to Scarcity

Warsh's framework essentially returns to the credibility-based paradigms of Volcker and early Greenspan while incorporating new era variables:

• Learning from 1979–1983: Credibility as a hard constraint.

• Learning from 2015–2018: QT is feasible but requires institutional support.

• New variables: Structural supply-side deflation brought by AI, contraction in the dollar's role under de-globalization, and the “America First” strategy of the Trump administration.

Historically, each paradigm shift has been accompanied by an asset repricing period of 18–36 months. We are currently at the beginning of this cycle.

3. The Five Pillars of Warsh's Framework (Extracted from the Hearing)

3.1 Pillar One: Reconstruction of the Inflation Framework——"More Representative Indicators"

Warsh’s original words: "Adopt more representative inflation indicators, focus on the potential trends of inflation, and weaken the reliance on dot plots."

Interpretation:

• Use of multiple indicators: PCE / Core PCE / CPI / Truflation real-time data / adjusted housing inflation (excluding lags) will be comprehensively assessed, no longer held hostage by a single sequence.

• Potential trends: More focus on core sticky components after stripping away supply shocks——this aligns with the P component design direction of the InflationMonitor IPS (enhancing weights on Core CPI, Core PCE, and services ex-shelter).

• Weakening the dot plot: As a "median of committee expectations," the dot plot has been misleading to markets multiple times in the past two years (in March 2022, the dot plot indicated 7 rate hikes for the year, but there were actually 10; in March 2024, the expectat...

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。