“Don’t Fight the Fed.” But What If You Can’t Find It?
The biggest issue at tomorrow’s FOMC meeting… the Wall Street skill that may be about to depreciate … what Bernanke built and Warsh wants to dismantle … how to invest when the Fed goes quiet …
Tomorrow, every financial anchor on every financial network will ask the same three questions…
They’re fair and important questions.
But there’s one thing I’d argue that matters more than the bias language or even Warsh’s live comments about upcoming rate policy…
Whether Warsh says anything – directly or indirectly – that signals he intends to dismantle one of the most powerful tools the Federal Reserve has developed over the past 15 years.
It’s a tool that Wall Street has come to rely on so completely that the entire investment ecosystem has reorganized itself around it…
Forward guidance.
If Warsh follows through on what he’s been saying for years, its days are numbered.
How the Fed taught Wall Street to stop thinking
Let’s rewind to May 2013.
Ben Bernanke was testifying before Congress, fielding routine questions about monetary policy.
The economy was recovering. The Fed had been running its bond-buying program – quantitative easing – at full throttle since the financial crisis. And then Bernanke casually mentioned that the Fed might, at some point in the future, begin to “taper” that program.
Nothing changed. Not rates. Not policy. Not a single dollar of bond purchases. Just a word – “taper” – used loosely in a congressional hearing.
What happened next became known as the Taper Tantrum.
Bond yields spiked… stock markets lurched… capital violently pulled out of emerging markets across the globe…
The damage was real, and it was significant – all because of a hypothetical, future-tense, offhand remark from a central banker.
That moment crystallized something important: the Federal Reserve’s words had become, in many ways, more powerful than its actions.
This wasn’t an accident.
How Bernanke built the machine
When the 2008 financial crisis hit and the Fed slashed rates to zero, Bernanke faced a problem…
You can’t cut rates below zero – at least not in any conventional sense. So, if you want to further stimulate the economy, you need another lever.
Bernanke’s answer was communication itself.
If the Fed couldn’t lower rates further, it could at least tell markets where rates were going to stay – and for how long. By making credible commitments about the future path of policy, the Fed could influence long-term borrowing costs even when short-term rates were pinned at the floor.
This was the birth of modern forward guidance as an active policy tool. The Fed introduced the dot plot: a chart showing exactly where each Fed official expected rates to go over the next several years, published four times a year for the whole world to see.
Jerome Powell took the architecture Bernanke built and doubled down. He moved to hold press conferences after every single FOMC meeting – not just the four “major” ones. Every six weeks, the Fed Chair stood before cameras and fielded questions about the rate path, economic projections, and what might change his mind.
And on many occasions, the commentary in these press conferences moved the market more than the FOMC statement itself.
Over time, a whole industry grew up around decoding all of this…
Fed watchers. Dot plot analysts. “Fedspeak” translators.
Hedge funds with entire teams dedicated to parsing the Chair’s word choices. The skill of reading the Fed became, in many corners of Wall Street, more valuable than reading earnings reports.
Which brings us to Kevin Warsh – and why he wants to tear it all down.
“I don’t believe in forward guidance”
Warsh has been publicly skeptical of forward guidance for years. But at his Senate confirmation hearing in April, he put it plainly:
Unlike many of my colleagues, past and present, I don’t believe in forward guidance.
I don’t believe that I should be previewing for you what a future decision might be.
That’s not a philosophical musing. That’s rubber-meets-road policy intent. And he went further, explaining specifically why the dot plot troubles him:
The Fed tells the whole world what their dots are going to be, what their forecasts are going to be.
Well, the Fed’s human then – they hold on to those forecasts longer than they should.
He’s arguing that forward guidance has become a trap – once the Fed publishes its projected rate path, it becomes psychologically and politically difficult to deviate from it, even when the data suggests otherwise.
The dot plot, in other words, doesn’t just tell markets where rates are going. It locks the Fed into going there.
Here’s Warsh’s broader philosophy, as he expressed it to the IMF:
The central bank should find new comfort in working without applause and without the audience on the edge of its seats.
He wants a Fed that acts on data, not one that manages expectations so carefully it becomes captive to them.
According to reporting from the Financial Times and confirmed by several former Fed officials, Warsh may move to curtail or eliminate the dot plot as early as tomorrow’s meeting.
He may simply decline to submit his own dot – or signal in his press conference that the framework is under review.
But why tomorrow?
Logically, tomorrow is the perfect strategic moment to make this change.
The June meeting is one of only four per year that includes an updated Summary of Economic Projections – the formal release that contains the dot plot. Warsh can’t simply sidestep it.
He must either publish it as usual, modify the format, or make an active decision not to participate. That forced hand makes tomorrow a genuine inflection point, not a hypothetical one.
If he’s going to move on this at all, tomorrow is the natural opening.
And that would be a genuine regime change in how the world’s most powerful central bank communicates.
So, what’s the effect on investors?
From “don’t fight the Fed” to “can’t find the Fed”
“Don’t fight the Fed” is one of the oldest rules in investing.
The idea is simple: the Fed controls the price of money, and that price determines the value of almost every asset. Fighting the Fed is like fighting gravity.
But that rule assumes you know where the Fed is going. It assumes the dot plot is there, the forward guidance is there, and the roadmap is legible. You might disagree with the destination, but at least you can see it.
What happens in a world where the Fed deliberately stops telling you where it’s going and when?
The short answer: volatility goes up.
Every data release becomes a larger event. Every press conference becomes less scripted and more consequential. And the market can no longer front-run Fed signals because there are fewer signals to front-run.
Instead of a central bank that telegraphs its moves months in advance, you get one that responds to data in real time – and keeps you guessing until it acts.
For investors, that changes things in three concrete ways…
What changes – and what to do about it
One…
Stop positioning around Fed signals. Start positioning around data.
If the dot plot goes away, the data becomes the new dot plot. The CPI… the jobs report… the PCE… and most notably, corporate earnings.
The economic data that the Fed is responding to takes center stage in a way it hasn’t in years. So, investors who’ve built portfolios around reading Fed communications will need to rebuild them around reading the economy directly.
That’s not necessarily a worse skill – it’s arguably a healthier one. But it requires a different set of tools.
This is where a fundamentals-first approach becomes more valuable, not less. Our growth investing expert, Louis Navellier, editor of Growth Investor, has spent decades building quantitative models for exactly this – identifying companies with genuine earnings momentum rather than rate sensitivity. And last week, he held an event with TradeSmith CEO Keith Kaplan to detail a new collaboration: Louis’ quantitative system that finds stocks with fundamental excellence and Keith’s quantitative system that adds a timing layer – a data-driven signal for when it’s time to buy or sell.
You can catch a free replay of the event right here. But heads-up, this is the last day it’s available, so if you’ve been meaning to watch, this is last call.
Two…
Expect more volatility around data events – and consider trading it.
A less-transparent Fed doesn’t just add uncertainty – it concentrates it.
Without forward guidance smoothing the path, markets will reprice more sharply each time new data arrives. Every inflation report, every manufacturing number, every GDP release becomes a potential inflection point.
For traders, this is a genuine opportunity. Jonathan Rose, editor of Masters in Trading, tracks institutional capital flows in real time – watching where the big money positions ahead of major events rather than reacting after.
In a higher-volatility environment driven by data surprises rather than Fed signals, that kind of positioning intelligence becomes more valuable.
Three…
Hard assets become a more durable anchor.
Forward guidance gave investors something to rely on: a predictable rate path, a stable anchor for long-term valuations.
If that anchor weakens, the case for hard assets – gold especially – strengthens. Not as a trade, but as a structural portfolio component.
Central banks have been net buyers of gold for four consecutive years. Meanwhile, the dollar’s share of global reserves has declined for two decades. Those aren’t cyclical arguments. They’re structural ones – and a less transparent Fed makes the structural case more compelling, not less.
Our global macro expert Eric Fry, editor of Fry’s Investment Report, has been making exactly this case on gold for years. And as we covered in yesterday’s Digest, the bull case for the yellow metal strengthened considerably on Sunday’s news of the U.S/Iran peace agreement.
What to listen for tomorrow
The rate decision itself will almost certainly be a hold. And that’s true even accounting for Sunday’s Iran peace deal…
Yes, the repricing is real – yields are falling, rate-hike odds are softening, and the longer-term rate path looks different now than it did Friday. But tomorrow’s decision was always going to be a hold.
So, there’s a different angle to watch for tomorrow…
Because the rate decision is essentially pre-settled, the dot plot has become the primary policy instrument at this meeting – the one place where Warsh can actually move the needle.
And here’s what makes it especially shrewd: stripping away the dot plot allows him to pivot the Fed’s stance without the market shock of an unprompted rate hike.
He can tighten expectations without tightening rates. It’s a way to send a hawkish signal in a way that doesn’t automatically roil the market. If he makes that move tomorrow, read it accordingly.
So, watch whether Warsh signals – directly or through deliberate vagueness – that the era of explicit Fed guidance is ending.
If he declines to elaborate on the rate path when pressed, that’s a signal. If he pushes back on a reporter’s question about future moves with something like “the data will tell us,” that’s a signal. If anything surfaces about the dot plot being under review, that’s obviously an enormous signal.
And if he kills the dot plot at his very first meeting?
Well, that tells you how central this is to his vision of the Fed – and how quickly the rules of the game are changing.
We’ll be watching closely. And we’ll have a full analysis here in tomorrow’s Digest after the decision drops.
Bottom line: The old rule was don’t fight the Fed. The new rule – if Warsh gets his way – is that you’ll have to find it first.
Have a good evening,
Jeff Remsburg
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