Yesterday Kevin Warsh declared the regime change at the Fed.

Today the market reacted. And it moved exactly in the direction the new regime points.

Gold down about 3%. The dollar firm. Stocks rose, led by chips. And the 10-year Treasury yield? It's still hanging around 4.45% — familiar territory.

Remember, the consensus worry going into Warsh was that a Fed which stops telegraphing (no forward guidance, and in the case of yesterday, no dot from the chair) would leave the bond market unanchored and volatile.

Instead, the long end of the yield curve was among the steadiest of markets today.  This, the day after the new Fed Chair announced the entire framework at the Fed (on monetary policy) was under review for a rebuild.

On gold and the dollar: As we discussed last week, the move in gold from under $1,000 to over $5,000 mapped fifteen years of the Fed expanding its balance sheet. It's been a quantity-of-money trade, not a rates trade.

And Warsh is looking to end that era: smaller balance sheet, taking the Fed's thumb off the scale.

Gold falls, and the dollar firms, because the Fed getting out of the business of fiscal policy is good for the currency.

What about stocks?

Back in my May 18 note, we described the "Warsh doctrine:" smaller balance sheet and lower rates.  Lower rates, in his words, because "AI is going to make everything cost less."

The traditional Fed raises rates to slow the economy down. Warsh thinks a wave of AI-driven productivity is growth positive and a structural disinflationary force.

With that, yesterday, in his first press conference, he called AI "American ingenuity." And he told the room that strong, productivity-led growth is "not something that we fear, but something we embrace."

So, the Fed Chair believes AI is a disinflation engine that lets him lower rates and shrink the balance sheet. And the market, the very next day, bid up the companies building that engine.

If Warsh is building his Fed around AI-led productivity, the market voted today in approval.