Hawkish

In just 118 days, Kevin Warsh has already profoundly changed interest-rate expectations. The chart shows how, since he took office in May and following Jackson Hole, markets have gradually priced in a significantly more restrictive monetary path.

Yesterday’s Fed decision confirmed this shift in regime. More important than the decision itself was the message: the market can no longer simply assume that the next move in rates will be lower. The expected path for Fed Funds has moved materially higher compared with May.

For investors, this changes the equation. Short-term rates are remunerative again, while a structurally higher cost of capital requires greater discipline on valuations, particularly for long-duration assets.