MacroVoices #545 Michael Howell: Warsh vs. The Markets

In early August 2026, the two-year Treasury yield—historically an 85% accurate predictor of Fed policy—was signaling that the Federal Reserve would need to raise rates. Yet the market was pricing in roughly a two-thirds probability that Chair Kevin Warsh would not hike at the September meeting, leaving a potential move uncomfortably close to the election. This tension between what the bond market demands and what political reality allows is the central conflict of the current cycle, and Michael Howell of Crossborder Capital argues that the resolution will be higher rates, higher yields, and a painful reckoning for risk assets.

The Global Liquidity Cycle Has Turned

Howell’s framework begins with a simple premise: money drives markets. His firm tracks the flow of money through world financial markets, and that flow follows a remarkably regular 5–6 year cycle. That cycle peaked at the end of 2025 and is now rolling over. Crucially, the decline is not yet being driven by central bank tightening—that is still to come. Instead, the real economy is strengthening and "crowding out" the financial sector. As Howell puts it, "all money that is anywhere must be somewhere. If it's in the real economy, it's not in financial markets and vice versa." Strong nominal GDP growth, fueled by fiscal spending, the AI boom, and deglobalization-driven capex, is pulling liquidity out of asset ma