How To Trade The New Warsh Fed | Bob Sheehan
Bob Sheehan discusses how Fed Chair Kevin Warsh's approach signals the end of the "Fed put"—the market's assumption that the Fed will intervene during sharp risk asset selloffs. He argues this requires investors to shift from relying on Fed guidance to focusing on data-driven analysis, with distinct near-term and longer-term implications for yield curve dynamics and equity positioning.
Summary
Bob Sheehan, founder of Lighthouse Macro, explains his career trajectory from Bank of America's portfolio management team through various macro firms to his current research shop, emphasizing how hands-on experience managing real capital informed his data-driven macro framework. He advocates for grounding macro analysis in quantitative evidence rather than subjective interpretation, while maintaining intellectual humility about inevitable prediction errors and maintaining falsifiable positions.
Sheehan's central thesis is that Fed Chair Kevin Warsh has effectively killed the "Fed put"—the market's long-standing assumption that the Fed will rescue risk assets during sharp selloffs. Unlike predecessors who provided extensive forward guidance, Warsh has dramatically reduced Fed communication (cutting guidance words from ~340 to ~170) and signaled that monetary policy will be less predictable and more reactive to real-time data. This represents a structural regime change that should fundamentally alter how investors approach Fed policy and market volatility.
Regarding curve dynamics, Sheehan identifies two distinct trades operating on different timelines: the front-end (short-duration) yields are experiencing a bear flattener in the near term, driven by hawkish rate expectations and inflation data, while the long end remains primarily a supply story that will matter more over coming months and quarters. Foreign Treasury buyer withdrawal and reserve management purchases will eventually drive the long end higher, creating what he expects to be a eventual steepener after the initial flattening phase.
On economic data interpretation, Sheehan argues that with Warsh removing forward guidance, investors should place less weight on Fed officials' commentary about specific economic indicators and instead evaluate data purely on its historical and relative merits. This shifts the analytical framework from "what will the Fed think about this number" to "what does this number tell us about economic fundamentals."
Sheehan emphasizes that macro analysis must account for multiple interconnected variables simultaneously—monetary policy shifts, fiscal dynamics, balance sheet mechanics, and relative currency/commodity positions—making the field inherently complex but intellectually rewarding. He stresses that all macro outcomes should be framed relatively rather than absolutely, as markets price relative performance between competing alternatives (e.g., the dollar versus other currencies) rather than absolute conditions.
About this episode
Markets may be entering a fundamentally different monetary regime under Kevin Warsh. This week, Bob Sheehan of Lighthouse Macro joins to explain why the Fed's evolving framework could reshape how investors interpret policy, economic data, and market pricing. We discuss the end of the Fed put, rising rate volatility, Treasury curve dynamics, fiscal pressures, and why data-driven macro matters more than ever. Enjoy! TIMESTAMPS: 00:00 Intro 02:04 Bob's Macro Background 09:21 Data-Driven Macro 13:13 The Fed Put Is Dead 16:46 Less Guidance, More Volatility 21:13 Why Data Matters Even More 25:35 The Two Trades In Rates 33:16 Balance Sheet Games 37:42 The Fiscal Doom Loop 43:32 Final Thoughts FOLLOW BOB › X/Twitter – https://x.com/LHMacro › Research – https://lighthousemacro.com/ FOLLOW THE SHOW › Forward Guidance – https://x.com/ForwardGuidance › Felix – https://x.com/fejau_inc › Telegram – https://t.me/+CAoZQpC-i6BjYTEx › Blockworks – https://x.com/Blockworks EVENTS › Join us at Digital Asset Summit 2026 Asia October 7th & Digital Asset 2026 London November 10-11th https://blockworks.com/events Blockworks recently acquired Messari. For more information, please visit: https://blockworks.com/insights/blockworks-acquires-messari DISCLAIMER Nothing said on Forward Guidance is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only. Any views expressed are opinions, not financial advice. Hosts and guests may hold positions in the companies, funds, or projects discussed.
Key Insights
- Warsh has signaled an end to the Fed put by dramatically reducing forward guidance from approximately 340 words to 170 words, fundamentally changing the reflexive market assumption that the Fed will intervene during risk asset selloffs.
- With less Fed guidance, the responsibility shifts to investors to parse economic data independently rather than waiting for Fed interpretation, requiring a return to data-driven analysis separate from policy communication.
- The yield curve is experiencing two distinct, sequential trades: a near-term bear flattener on the short end driven by hawkish rate expectations, followed by a longer-term steepening driven by Treasury supply dynamics and foreign buyer withdrawal.
- Removing the Fed put increases market volatility because nine of eighteen Fed officials changed their rate hike expectations to September and December, creating wider ranges of outcomes without the historical certainty that forward guidance provided.
- The long end of the yield curve should be analyzed as a separate supply-driven story rather than a direct function of Fed rate policy, with fiscal expenditures and Treasury issuance creating pressure on longer-dated yields.
- Government fiscal dynamics create a doom loop where higher interest rates increase debt service costs, requiring more Treasury issuance, which then pushes yields higher, creating compound pressure on the long end of the curve.
- All macro analysis should be framed relatively rather than absolutely—for example, evaluating whether economic conditions are better or worse relative to competitors rather than assessing absolute conditions.
- The new Fed regime under Warsh creates conditions favoring defensive, shorter-duration equity exposure (healthcare, staples) over longer-duration growth stocks while the macro environment finds its level and monetary policy intentions become clearer.
Topics
Transcript
The Fed put is essentially the market's assumption that if risk assets fall hard enough, the Fed's going to step in, right? People were like, don't worry, the Fed's coming in. Every time there's a big sell-off, don't worry, buy, buy the sell-off. And I think Warsh has very much tried to signal that that's gone. That's not going to be back. I think the degree that he's removed it is meaningful. And I think it's something that should change the way investors perceive kind of Fed policy. If I'm looking at the Fed and fed and i'm like okay they're not going to be as direct about what they're trying to tell us then i'm going to be a…
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