Reprogramming the Fed’s Reaction Function

Reprogramming the Fed’s Reaction Function Sage Advisory Wed, July 29, 2026 at 7:19 PM GMT+2 2 min read This article was originally published on ETFTrends. com. The month following Fed Chair Warsh's first meeting has seen no shortage of drama,  as U.

S. /Iran hostilities resumed (then paused again), inflation surprised to the downside, and the market ascribed an increasing probability of near-term hikes in the absence of forward guidance . The probability of a Fed hike in July exemplifies the new reality of Fed policy: the odds of a rate hike at the July FOMC meeting surged to 39% after Warsh's first FOMC meeting, fell, rose again to 43% following the resumption of U.

S. /Iran bombings, plunged to 10% after the most recent CPI release, and now stand at 38%, one day before the next meeting begins.   Chart 1 While our base case remains that the FOMC holds rates steady in July, the push and pull between easing shelter inflation and uncertainty surrounding elevated energy prices following the closure of the Strait of Hormuz have left the market assigning meaningful odds to a rate hike under a potentially more adaptive Warsh Fed.

Investors will likely focus as much on Warsh's press conference as on the policy decision itself, searching for clues about the committee's reaction function, even if he avoids offering explicit guidance to markets.      Long-term interest rates remain driven more by Fed expectations and less by fiscal sustainability concerns, a notable reversal from last year. While the 10-year Treasury yield has moved higher in 2026, the increase has been driven primarily by investors raising their expectations for the future path of Fed policy rather than demanding greater compensation for long-term fiscal risks.

decomposing 10 year Our base case remains that the Fed holds steady when it concludes its meeting this week. The more notable takeaway is what this month has revealed about the mechanics of rate markets under the new Warsh regime. With forward guidance largely absent, interest rates have become far more sensitive to spot movements in Fed expectations, repricing sharply with each data release.

That sensitivity cuts both ways. A few more favorable inflation prints, combined with a de-escalation in the Strait of Hormuz, would remove much of the upside pressure that has kept hike probabilities elevated and could pull the yield curve lower in short order. For more news, information, and analysis, visit the  ETF Strategist Content Hub .

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such.

All results included in this report constitute Sage's opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value.

Past performance is not a guarantee of future results. Story Continues Sage Advisory Services, Ltd. Co.

is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at sageadvisory. com, or refer to our Form ADV, which is available upon request by calling 512.

327. 5530. POPULAR ARTICLES AND RESOURCES FROM ETFTRENDS.

COM SPY ETF Quote VOO ETF Quote QQQ ETF Quote VTI ETF Quote JNUG ETF Quote Top 34 Gold ETFs Top 34 Oil ETFs Top 57 Financials ETFs Finding Signals From Noise: Inside T. Rowe Price's $30 Billion Active ETF Engine ROBO vs BOTZ ETF: A Comparison for Portfolios Offense & Defense: The Infrastructure ETF Playbook $100 Billion ETFs: Meet the New Class of Mega-Funds GDX at 20: Gold & the Pursuit of Independence ","yLinkElement":"context_link","yModuleName":"content-canvas","yTrafficOrigin":"content-canvas default"}" target="_blank" rel="noopener noreferrer nofollow">READ MORE AT ETFTRENDS.