Warshโs speech in Portugal has already set the tone for US stocks.
Remember what we said?โSomething has to die: the dollar, US Treasuries, or US stocks. If none of them can die, then they all die!
So only US stocks can die.
This time, Warsh effectively wrote that line into policy.
Balance sheet reduction: โThe hole we poked in โ18 canโt be plugged in just โ18 weeks.โ
Translated, it means: no cuts until 2027, but after 2027 no one will be able to run.
Barclays has already warnedโif balance sheet reduction goes too far, the repurchase market will be the first to blow up.
Warsh knows that, so he set up a balance sheet working group to check where the mines are. Not that they wonโt explodeโheโs just confirming exactly where theyโll explode.
No rate cuts: โIf anyone thinks weโre going to be satisfied with inflation above 2%, theyโll be disappointed.โ
Even if inflation falls, they still wonโt cut. 2% is the iron floor. Higher-for-longer is the baseline scenario.
No bailouts: โPrimarily through asset-price operations.โ
He wonโt directly drain liquidityโhe lets the market watch its own portfolio shrink as it pokes itself. The Fed Put is formally buried. Forward guidance is thrown out; every FOMC is a blind box.
Put these three together, and you get one choice: protect the dollarโs credibility, protect the US Treasury market, and offer US stocks as the sacrifice.
Over the past fifteen years, the biggest long in US stocks wasnโt Buffettโit was the Federal Reserveโs $80-trillion balance sheet.
Every time it dropped, it was picked back up.
Now this long is gone.
Balance sheet reduction + no rate cuts + no bailouts = the foundation of the US stock valuation framework is pulled out.
โGrowth stocksโ kept alive by zero ratesโAI, SaaS, unprofitable techโare the first to show their true form.
Warsh gave a timeline: move in by Q4 2027. But the market wonโt waitโthe market is six months ahead of the central bank. If balance sheet reduction happens in Q4 2027, pricing for it starts in Q1 2027.
His coldest part is that heโs not in a hurry. The hole from โ18 took him 18 years to slowly plug, if he wants. But the market canโt wait 18 years. The market canโt even wait 18 months.
The dollar and US Treasuries live. US stocks die.
Warsh has chosen.
#FedPut #QT #Stocks #Bonds #Dollar