Warsh Fed: Into the unknown

Research evidence excerpt

Warsh Fed: Into the unknown

FICC Research

Interest Rates

17 June 2026

US Rates Research

Chair Warsh's first FOMC meeting revealed a hawkish reaction

function, a desire to move away from forward guidance and a

review of balance sheet policy, to be potentially concluded by Anshul Pradhan +1 212 412 3681

year-end. We believe these changes argue for higher rate anshul.pradhan@barclays.com

levels across the curve and higher implied volatility. BCI, US

Amrut Nashikkar

+1 212 412 1848

• The FOMC meeting outcome revealed a hawkish reaction function, driven by a singular amrut.nashikkar@barclays.com

focus on delivering price stability. The revised dot plot showed not only the median Fed BCI, US

participant forecasting a materially higher rate path across the forecast horizon, but as many

Samuel Earl

as six participants anticipating two or more hikes before the end of the year (see here). + 1 212 526 5426

samuel.earl@barclays.com

• The absence of forward guidance should raise term premium via the volatility BCI, US

channel. The shift away from forward guidance toward data- and event-driven

communication increases uncertainty about the policy reaction function. This supports

higher implied vol, richer event premia, and greater sensitivity of rates markets to macro data

and FOMC decision dates. While an inflation-focused Fed argues for a lower inflation risk

premium, that was not high to begin with.

• The Fed is exploring its balance sheet options through the newly announced task force,

with a conclusion potentially before the end of the year. Chair Warsh noted, "Fed policy

appears to be somewhat restrictive," judging from the housing market, but not financial

markets, and the latter may have to do with the balance sheet. We think a return to scarcity-