Will Warsh cutting rates after taking over the Fed? Raoul Pal: He will tolerate inflation for AI productivity, with crypto and gold possibly the biggest winners

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The "cosmic truth" behind the Fed's change of leadership is finally revealed! Macro guru Raoul Pal published a massive analysis, asserting that the new Fed Chair Kevin Warsh is not Trump's puppet, but rather a believer in the "productivity miracle." Warsh will team up with Treasury Secretary Bessent to forcibly channel global capital into AI and energy infrastructure through tolerating inflation and "financial repression" tactics. Pal asserts that this playbook will usher in an epic bull market for cryptocurrencies and gold, with the only gatekeeper being the future bond market. (Recap: News Flash》Warsh successfully passed the Senate! Kevin Warsh officially confirmed to join the Fed, about to take over Fed monetary policy) (Background: Powell counts down three days to hand over to Warsh: After previous Fed chair transitions, how have U.S. stocks moved in the short term?) The U.S. Senate has just officially confirmed Kevin Warsh as the 17th Chair of the Federal Reserve (Fed) with the closest vote in history at 54 to 45. While most media still focus on partisan confrontation and political appointments, Raoul Pal, former Goldman Sachs executive and macroeconomic guru, published a highly forward-looking macro essay on the social platform X. He argues that this is by no means a simple political story, but rather an epic transformation about how global capital will be reconfigured in accordance with the "laws of the universe." Raoul Pal proposes a philosophical framework called the "Universal Code." He believes the universe automatically selects the configuration that "produces the most intelligence per unit of energy." The current winning configuration is very clear: AI sits atop an accelerating semiconductor cycle and energy buildout. Pal points out that politics, geopolitics, and monetary policy must all align with this "gradient," otherwise nations will decline. In this situation, the Fed's new role is no longer simply that of an inflation police officer, but must align with the productivity wave, and cannot use high interest rates to obstruct the expansion of AI infrastructure. Unlike traditional academics (like Waller) or community bankers (like Bowman), Kevin Warsh has been an active tech investor over the past decade. He has personally invested capital into semiconductors and energy infrastructure, giving him the "investor conviction" that other candidates lack—the belief that the productivity miracle can lead America to win the 21st century. Pal emphasizes that the "Regime Change" advocated by Warsh includes reducing forward guidance, reforming inflation data, and most crucially: shrinking the Fed's balance sheet and coordinating highly with the Treasury. He will no longer be a lone central bank official, but will form a "Committee to Save the World" with Treasury Secretary Scott Bessent. Raoul Pal predicts that Warsh's policies will combine the characteristics of two historical periods: - Greenspan 1990s Model: Facing a hot economy and low unemployment, Warsh may emulate Greenspan back then, observing that productivity (then IT, now AI) suppressed core inflation, and thus choosing "not to raise rates significantly," tolerating economic overheating in exchange for a longer growth cycle. - 1940s Financial Repression: Facing $36 trillion in debt, the U.S. cannot solve it through tightening. The Fed must suppress real interest rates, allowing banks and "stablecoin issuers" to massively absorb Treasury bonds, coupled with a moderate weakening of the dollar to dilute the debt. In addition, Treasury Secretary Bessent will push for a "chips-for-Treasuries" agreement internationally, attracting China, Japan, and Gulf countries to buy long-term bonds in exchange for access to advanced AI equipment. Pal describes this as an "industrial agreement of the financial repression era." According to Pal's timeline, in the short term (June FOMC) the Fed will not immediately cut rates, but will pivot to emphasizing core inflation and giving more flexibility to the 2% target. By 2026-2027, as the framework review is completed, the Fed funds rate may be substantially reduced by 250-325 basis points, tolerating services inflation in exchange for 5-6% nominal GDP growth. Under this framework, the biggest beneficiary assets include: - Gold: Benefiting from financial repression and real negative interest rates. - Cryptocurrency: Stablecoins become part of the Treasury absorption mechanism, and the liquidity floodgates will open. - AI capex-related stocks: Infrastructure spending maintains high-speed compound growth. However, this massive framework is not without risks. Raoul Pal warns that "the bond market is the only gatekeeper." If the 10-year Treasury yield continues to soar past 5.5%, or real yields become too high causing the framework to break, this productivity bet will be declared a failure. The market is currently still pricing according to traditional inflation models, but Warsh's ascension is precisely a bet that "productivity" will complete the disinflation work that the Fed cannot.

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