Bank of America warns Kevin Warsh’s Fed strategy ‘works like a tax on the economy’ — how to protect your money

Bank of America warns Kevin Warsh’s Fed strategy ‘works like a tax on the economy’ — how to protect your money Clay Halton Thu, August 20, 2026 at 1:05 PM GMT+2 6 min read Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below. Kevin Warsh has wasted little time reshaping the Federal Reserve since taking over as chair earlier this year. At his first press conference in June, Warsh made clear that he wanted to pull back from the central bank's reliance on "forward guidance" — the practice of signaling where interest rates could be headed — arguing that it is not "well suited" to the current economic environment (1).

He has also launched a broader review of how the Fed approaches inflation and monetary policy. Must Read Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one JPMorgan sees gold hitting $5,000/oz by Q4 — and savvy investors are protecting their wealth with a tax-advantaged Gold IRA. Get your free guide from Priority Gold The tax breaks in Trump's 'big beautiful bill' expire after 2028.

Here are 4 moves to make before the window closes That shift was on display again after the Fed's July meeting, when policymakers voted 9-3 to keep the federal funds rate at 3. 50% to 3. 75% (2).

While three officials favored a rate hike, Warsh declined to signal what the Fed might do next. He instead pointed to the sharp rise in bond yields since the Fed's previous meeting and said policymakers would act when necessary. But Warsh's reluctance to lay out what comes next has some economists worried that investors aren't getting enough information to understand how the Fed will respond to changing economic conditions.

Among them are Bank of America economists Aditya Bhave and Mark Cabana. In a research note provided directly to TheStreet, they argued that the problem isn't necessarily Warsh's decision to stop telling markets whether the next Fed meeting could bring a hike, cut or hold (3). Rather, they're concerned investors don't have a clear enough picture of what would cause the Fed to change course in the first place.

Why Bank of America economists say Warsh's strategy is risky At the heart of Bank of America's concern is what economists call the Fed's "reaction function. " Essentially, it's how policymakers respond when inflation, employment and other economic indicators change. Bhave and Cabana argue investors need a better understanding of which inflation measures Warsh is watching, how he defines underlying inflation and how far inflation can stray from the Fed's 2% target before policymakers feel compelled to act.

Story Continues Without that framework, investors may demand a greater return for taking on the uncertainty of holding longer-term assets. The BofA economists argue that the resulting risk premium "works like a tax on the economy," according to TheStreet (3). Higher Treasury yields can filter through to mortgages and other loans, making it more expensive for consumers and businesses to borrow.

The bond market's reaction after the July meeting added to those concerns. Long-term yields climbed even as shorter-term yields fell, with the 30-year Treasury yield crossing 5. 2% for the first time since mid-2007.

Reuters reported that the move reflected questions about the Fed's credibility and whether investors believed policymakers were doing enough to contain inflation (4). That matters because inflation remains above the Fed's 2% target, leaving policymakers with difficult decisions about how long to keep rates elevated or whether further hikes will ultimately be necessary. The Fed's preferred path has become harder for investors to predict just as uncertainty around rates, inflation and the economy remains high.

Bank of America isn't predicting that Warsh's approach will send the economy into a tailspin. But its warning highlights another risk investors have to contend with: Uncertainty over Fed policy itself can influence markets and borrowing costs even before policymakers change rates. Read More: Millionaires under 43 hold only 25% of their wealth in stocks.

Here's where their money is actually going Protect your portfolio when the Fed is unpredictable Investors can't control what Warsh or the Fed does next, but they can control how exposed their portfolios are to any one market outcome. Diversifying across different types of assets can provide another layer of protection when stocks, interest rates or inflation don't move as expected. One asset investors have historically used to diversify beyond stocks and bonds is gold.

According to the World Gold Council, gold tends to behave differently from equities and other risk assets, with its negative correlation to stocks increasing during sharp market selloffs (5). That doesn't mean gold will always rise when stocks fall and its price can be volatile, but those different performance patterns can give it a distinct role within a diversified portfolio. If you're curious about adding precious metals to your broader inflation-hedging strategy, a gold IRA from Goldco lets you hold physical gold and other metals while still getting the tax advantages of an IRA.

Goldco is widely regarded as one of the leading companies in the space, with a 4. 8/5 rating on Trustpilot and an A+ from the Better Business Bureau. They also offer a guaranteed buyback program , meaning they'll repurchase your metals at the "highest price" according to market value if you ever decide to sell.

If you want to explore whether precious metals could be a helpful hedge for your portfolio, you can download Goldco's free gold and silver guide to see if it's a good fit for you. Look beyond stocks for investment opportunities Gold isn't the only alternative asset investors can use to diversify. Real estate can also provide exposure to a different corner of the economy.

And while owning an investment property outright can require significant upfront capital and ongoing management, fractional investing has made it possible to gain exposure to rental properties without becoming a landlord yourself. Mogul is one option. This real estate investment platform offers fractional ownership in blue-chip rental properties, which gives investors monthly rental income, real-time appreciation and tax benefits — without the need for a hefty down payment or 3 a.

m. tenant calls. Founded by former Goldman Sachs real estate investors, the mogul team handpicks the top 1% of single-family rental homes nationwide for you.

Simply put, you can invest in institutional-quality offerings for a fraction of the usual cost. Each property undergoes a vetting process, requiring a minimum 12% return even in downside scenarios. Across the board, the platform features an average annual IRR of 18.

8%. Their cash-on-cash yields, meanwhile, average between 10% and 12% annually. Offerings often sell out in under three hours , with investments typically ranging between $15,000 and $40,000 per property.

Every investment is secured by real assets, not dependent on the platform's viability. Each property is held in a standalone Propco LLC, so investors own the property — not the platform. Blockchain-based fractionalization adds a layer of safety, ensuring a permanent, verifiable record of each stake.

Getting started is a quick and easy process. You can sign up for an account and then browse available properties . Once you verify your information with their team, you can invest like a mogul in just a few clicks.

Take your real estate investments beyond housing Rental properties aren't the only type of real estate that can add another source of income and diversification to a portfolio. Farmland has its own set of return drivers, including crop prices, agricultural income and changes in land values, which means its performance doesn't necessarily rise and fall alongside the stock market. Research from the University of Illinois' TIAA Center for Farmland Research found that farmland returns have historically moved largely independently of equity markets, giving investors another way to diversify beyond traditional investments (6).

And you don't necessarily need to buy an entire farm to get exposure. FarmTogether gives accredited investors a way to invest in fractional ownership of U. S.

farmland. Investors can potentially earn income from crop production while also benefiting if the value of the land increases over time. The platform has $217 million in assets under management across 51 funded deals, covering eight states and 15 crop types .

FarmTogether says each offering goes through a 105-point due diligence process and less than 1% of deals in its pipeline make it onto the platform. Farmland has also historically held up differently than other assets during downturns. According to FarmTogether's own data comparing NCREIF indices from 1992-2025, farmland's returns have shown a lower correlation to inflation than stocks, bonds or REITs.

Farmland can be a distinct, historically uncorrelated asset class, but requires a multi-year holding period to come to fruition. Build a strategy around your financial goals Deciding whether investments such as gold, rental real estate or farmland belong in your portfolio is only part of the equation. How much you allocate to different assets and when you rebalance, sell, or adjust those investments can also have a significant impact on your long-term results.

Research from Envestnet estimates that financial advisors can add around 3% in portfolio value by focusing on areas including financial planning, asset allocation, investment selection, systematic rebalancing and tax management (7). That guidance can be particularly useful when markets are uncertain and investors are weighing how to protect their money without abandoning their long-term goals. A financial advisor can help crunch the numbers and build a plan that works.

That's where Advisor. com can come in. The platform connects you with an expert near you for free.

Advisor. com does the heavy lifting for you, vetting advisors based on track record, client ratios and regulatory background. Plus, their network comprises fiduciaries, who are legally required to act in your best interests.

Just enter a few details about your finances and goals and Advisor. com's AI-powered matching tool will connect you with a qualified expert best suited for your needs based on your unique financial goals and preferences. Finding the right advisor isn't always easy — there's no one-size-fits-all solution.

That's why Advisor. com lets you set up a free initial consultation , with no obligation to hire, to see if they're the right fit for you. Once you've got the right financial advisor in your corner, the next step is getting a clear picture of where your money's actually going.

That starts with the basics — budgeting and tracking your spending. You May Also Like A single line on your car insurance policy could be inflating your premium by up to 30% — here's what to change Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake.   Here's what it is and 3 simple steps to fix it ASAP Robert Kiyosaki says China is 'dumping' the US as America piles on debt.

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Subscribe now . Article sources We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines .

Reuters ( 1 , 4 ); Federal Reserve ( 2 ); TheStreet ( 3 ); World Gold Council ( 5 ); TIAA ( 6 ); Envestnet ( 7 ) This article provides information only and should not be construed as advice. It is provided without warranty of any kind.