Why the next Fed chair could make markets far more volatile

• Warsh explicitly rejects forward guidance, arguing it limited the Fed's flexibility during the 2021-2022 inflation surge, preferring a 'cold turkey strategy' of single-step rate moves without advance signaling
• UBS expects flattening pressure on the 5s30s Treasury yield curve and was stopped out of a rates trade positioned for aggressive 2027 easing after Warsh declined to offer dovish guidance
• Gold has fallen approximately 14% since Warsh's nomination, consistent with markets pricing in a tighter and less predictable monetary environment, while UBS forecasts slow balance sheet reduction starting at $25 billion monthly purchases

UBS Warns of Higher Market Volatility Under Incoming Fed Chair Kevin Warsh

UBS expects Kevin Warsh to be sworn in as Federal Reserve chair in time for the June 2026 FOMC meeting, marking a fundamental shift in monetary policy approach that could significantly increase market volatility.

Key Policy Departure

Warsh explicitly rejects forward guidance—the practice of telegraphing future rate moves—which has been central bank orthodoxy for four decades. Unlike predecessor Ben Bernanke, who championed gradual, predictable policy changes and quantitative easing, Warsh favors a "cold turkey strategy" of making rate decisions "in the room" without advance signaling.

His opposition to forward guidance stems from lessons learned during the Fed's 2021-2022 inflation mistake, when publishing rate forecasts reduced policy flexibility.

Market Implications

Bond Markets: UBS anticipates flattening pressure in the 5s30s spread (five-year to thirty-year Treasury yields). Steepener trades, which profit in dovish cutting cycles, may no longer work under Warsh's more unpredictable approach.

Gold: Prices have fallen approximately 14% since Warsh's nomination in late January, reflecting markets pricing in a tighter, less predictable monetary environment.

Balance Sheet: UBS forecasts gradual reduction through reserve management purchases of $25 billion monthly through year-end, rising to $40 billion in 2027 and $50 billion in 2028.

Investment Outlook

UBS was caught off guard by Warsh's less dovish stance, exiting a rates trade positioned for aggressive 2027 easing. The bank warns investors that four decades of transparent, predictable central banking is giving way to a more discretionary, reactive approach that will be "considerably harder to trade around."