Color us skeptical, but the tough talk from Warsh on keeping an eagle eye on inflation reads more as positioning to appease the markets than as a sign that the Fed will do all in its power to corral it. During his Jackson Hole remarks, he ran through the internals of core PCE that sit uncomfortably high relative to historic norms, and his stated 2% goal is still well below where inflation is today. His vigilance is just that, vigilance, with little concrete action behind it. The Fed's one tool for the job is short-term rates, but the political sword of Damocles hanging over it has left the Fed unwilling to pull the very lever Warsh has at his disposal. If rates do rise under this administration, it could come too late to matter.

Between the Fed and the Treasury, the market is reading rising global risk and a US bond market that looks less attractive than it did two weeks ago.

Choking up on the bat

The clearest move is in how the market has responded to volatility. Two weeks ago, more volatility tended to mean higher prices across the short-term Treasury and bond names. The sensitivity has remained just as high, but the outcome has flipped, with Pave’s scored beta of 1.4 swinging to the other side to roughly -1.4, across several short-term Treasury and bond ETFs. Investors are seemingly shifting toward defensive footing, where a jump in volatility may be signaling proper risk rather than an opportunity to join the dip buying we saw this summer.

The one place this eased was international bonds, where the flip was already underway two weeks ago and pulled back a little further this week. It is worth taking the move with a grain of salt since these large international funds hedge their currency back to the dollar, so the shift sits in the bonds themselves rather than in any currency move. It is a small change, and on its own might not be a signal worth leaning on.

All that glitters is gold

Absolute variance is our read on how closely each asset moves in step with the broader market, where a reading near 1 means moving more or less one-for-one with it. This week almost the whole set pulled away from that mark. Treasuries, aggregate bonds, the dollar funds, and the Japanese yen all moved lower, toward trading on their own rather than tracking the market. When investors are calm, most things drift together near the middle. When they agree risk has picked up, the readings fan out as money separates into what it trusts and what it does not. A lower reading is not a call on direction, since it can fall whether the market is climbing or sinking. It just says the market is coalescing around the view that risk is higher.

Gold went the other way. Its reading rose rather than fell, so instead of settling into a lane like the rest, gold is swinging harder and more reactively. That fits the inflation question hanging over the Fed, since gold is usually where that debate plays out, and its story stays unresolved as long as the Fed's resolve does. Gold also picked up a strong link to oil this week, climbing from near zero to 0.82 in our readings, the sort of inflation hedge behavior you tend to see when investors doubt the Fed will act.

Homebound less bonds

Positioning moved toward the dollar itself and away from the bonds. Our score on the bullish dollar fund, UUP, rose over the two weeks, while the score on its bearish counterpart, UDN, slipped. Gold's tendency to move opposite the dollar deepened as well. At the same time, Pave’s scores on the Treasury and bond names fell across the board, short-term Treasuries included, the place investors usually reach for first when they want safety.

That split is the whole point. When investors get nervous they still head for the US, where the markets are the largest and easiest to move in and out of. The difference this time is where they stop: rather than carry all the way into US bonds, they are parking in the dollar and leaving the bonds behind.

The Fed, and its unwillingness to curb inflation, seems to be the reason. With inflation running and Warsh unwilling to raise rates, locking money into a bond means accepting a fixed payout that inflation could erode. The dollar offers the same US safety and liquidity without that trade. So the money is favoring the currency over the bonds, which is what you would expect from investors who are worried about risk and doubt the Fed will get ahead of inflation.

‍

By Stephen Evans, CFA

‍

Risk Disclosure & Disclaimer

Copyright © 2026 Pave Finance, Inc. and Stephen Evans. All rights reserved. 

The attached material is provided in partnership with Pave Investment Advisors, LLC (“Pave”), and is the opinion of Pave and Pave’s Chief Investment Officer, Stephen Evans. Distribution is being provided through a licensing agreement, and any further dissemination is strictly prohibited.

You can update your preferences or unsubscribe from this list.

For Financial Professional Use Only

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. There is no guarantee any investment recommendations will be successful and there is a risk of losing money.

We take protecting your data and privacy very seriously. Please see our privacy policy here.

Pave Investment Advisors, LLC is an SEC Registered Investment Adviser. Such registration does not imply any level of expertise.

Securities offered through Pave Securities, LLC – New York, NY. Member FINRA/SIPC. You can review Pave Securities LLC with FINRA’s BrokerCheck BrokerCheck.

Advisory Services are only offered through Pave Investment Advisors, LLC., an SEC Registered Investment Adviser which is an affiliate of Pave Securities, LLC.

Pave Securities, LLC and Pave Investment Advisors, LLC do not offer tax or legal advice.

The news, resources and articles available on this site are being presented for educational purposes only and should not be considered specific investment or planning advice applicable to each individual.

Please see ADV Part 2A here and Form CRS here.