Yardeni sees 3 paths that could split or unite Fed factions

Yardeni Research outlines three scenarios tying the U.S.–Iran conflict to Fed cohesion under Trump nominee Kevin Warsh and incumbent Jerome Powell: (1) a short war prompting easing with Warsh pushing larger cuts, (2) resilient growth and sticky inflation keeping Powell and most of the FOMC against cuts while Warsh could dissent, and (3) prolonged stagflation leading both to favor easing with Warsh advocating deeper cuts. The note warns the war's trajectory will determine whether the Fed speaks with a unified voice or fractures along Powell/Warsh lines, raising policy uncertainty for markets.

Analysis

A near-term split in Fed decision-making combined with an active geopolitical shock creates regime uncertainty that amplifies both term premium and real-rate volatility. If markets price even a 25–75bp cumulative cut within 6–12 months, expect 10-year yields to fall 40–80bps in a dovish-unity outcome; conversely, a ’resilient growth + sticky inflation’ path can keep 10s 50–120bps higher than a dovish baseline as the Fed fragments and risk premia rise. These yield paths have outsized second-order effects: hardware and AI-infrastructure vendors see capex reallocation within quarters (lead times and orderbooks reprice faster than end-user ad budgets), while ad/consumer cyclical names re-rate more on demand elasticity than on nominal funding costs.

From a supply-chain angle, constrained component supply and a re-accelerating server cycle would concentrate upside into firms with tight OEM relationships and flexible build-to-order models; that creates near-term margin recovery even if broader sentiment is volatile. Ad-dependent mobile platforms are exposed to both growth-slow and stagflation outcomes — they are the first to see budget cuts when macro real incomes compress, and the last to recover if client ROAS weakens. The policy-confirmation clock (weeks–months) plus 2–3 CPI prints will be the determinative catalysts for which regime the market prices.

Because policy ambiguity increases realized volatility, option skew and term-structure strategies become efficient ways to express these views. Watch for the crossing of two signals as triggers: (1) Humped implied vol in tech hardware versus flat/low vol in ad-tech; (2) forward yields moving inside/outside a 40–80bps band around current levels — those crossings will define whether to favor capex beneficiaries or defensive ad shorts over a 3–9 month horizon.

Key Decisions for Investors

• Long SMCI via call spread (buy SMCI 6–9 month ATM calls, sell 1.2x strike) sized to 2–3% of book — rationale: convex upside if easing expectations compress 10-year by 40–80bps and AI capex accelerates; expected T+3–9 month return +30–50% if thesis holds, max loss = premium paid.
• Pair trade: Long SMCI (equity) vs Short APP (equity) for 3–6 months, dollar-neutral — isolates AI-infra capex vs ad-budget cyclicality; target 20–35% relative return if yields fall or ad budgets retrench, tail risk: symmetric loss if ad rebound coincides with broad risk-on.
• Buy protective tail puts on SMCI (3–6 month OTM puts) if entering long equity exposure — cost as insurance against a ’no-landing’ shock that keeps yields high and compresses long-duration multiples; treat as hedged expense capped at 1–2% of portfolio.
• Macro hedge: go long 2s10s flatten via Treasury futures or receive-floating steepeners sized to offset duration exposure from tech longs — execute after two consecutive CPI prints that move breakevens >20bps in either direction; expected payoff if market prices in cuts within 6–12 months.
• Event triggers & risk limits: trim SMCI/longs by 25% on confirmation of persistent CPI prints above market expectations (+0.3% month-over-month) or a renewed geopolitical spike that broadens term-premium >80bps; add to longs after either a clear Fed-confirmation (cut-signed probability >50%) or a sequence of CPI prints below consensus over 2 months.