By Elizabeth O'Brien
How should you invest now that Kevin Warsh is almost certain to be the next Federal Reserve chair? The short answer: Stay the course.
Warsh is headed for Senate confirmation and is likely to take over from Jerome Powell in mid-May. His first meeting leading the Federal Open Market Committee will be in June. That should reveal his first concrete views on interest rates and other Fed policy.
For now, markets aren't expecting much to change in terms of rates. The Fed's rate policy is at the "high end of neutral" or "mildly restrictive, " Powell said on Wednesday. Investors see an 89% chance that the federal-funds rate will remain in its current range of 3.5% to 3.75% by the end of 2026, according to the CME's FedWatch tool.
Yields rose a little on Wednesday with the 10-year Treasury yield hitting 4.4% as hopes for rate cuts dimmed.
Warsh faces considerable pressure from President Donald Trump to cut rates sooner, says Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments. But cutting rates won't be easy with inflation rearing up due to the Iran war. And Warsh would still need to convince a majority of FOMC voting members to go along -- including Powell, who said on Wednesday that he plans to stay on as a governor.
If rates hold steady, it wouldn't be bad for bond and stock investors, assuming yields don't deviate much.
How best to navigate the market?
On the bond side, focus on current income rather than seeking higher total returns that would arise from rate cuts (bond prices increase if yields fall and vice versa). Ideally, you want income that exceeds inflation, which is currently running around 3%.
Consider where you own bonds too. If you hold bonds in a taxable portfolio, taxes may eat into your income and erode your "real" inflation-adjusted returns.
The iShares Core U.S. Aggregate Bond exchange-traded fund, which tracks the broad bond market, currently yields about 4.3%. Investors should expect total returns in that neighborhood this year.
If you're comfortable taking on more risk, consider some junk bond exposure. The iShares iBoxx $ High Yield Corporate Bond ETF yields 6.5%. It should perform well as long as the economy doesn't dip into a recession, which could trigger defaults and credit-rating downgrades.
Preferred securities are another option. They tend to be issued by banks and other financial companies and yield a bit more than the broader bond market. The iShares Preferred & Income Securities ETF, for instance, yields 6.3%.
Treasury inflation-protected securities, or TIPS, are government-issued bonds designed to protect investors from inflation. However, they perform best when inflation exceeds investors' expectations, and they aren't attractive right now, says Jack Janasiewicz, portfolio manager at Natixis Investment Managers Solutions.
Higher inflation would be a killer, for both stocks and bonds. Both asset classes plunged in 2022, as pandemic-related prices soared and the Fed hiked rates sharply. Inflation pressures have increased with the Iran war, as have correlations between stocks and bonds, though the Fed isn't anywhere close to raising rates as rapidly.
Liquid alternatives can be a good diversifier in this environment. BlackRock's iShares Systematic Alternatives Active ETF uses strategies like derivatives to achieve less correlated returns. It's up about 10% this year, versus 4.3% for the S&P 500 and 0.54% for the Bloomberg US Aggregate Bond Index.
Another way to combat inflation is by boosting your stock exposure, Weiss says. Equities tend to rally on lower interest rates, and their growth typically exceeds inflation.
American Century's target-date funds, like the One Choice Target Date Portfolios, come in five-year increments based on your target retirement year. They hold a stock allocation of 45% at retirement, which is relatively high among its competitors.
"Putting all your money into bonds when you retire, it's not going to last," Weiss says. "A healthy amount of equities in retirement is more prudent."
Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 30, 2026 02:30 ET (06:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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