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What if the fundamental rules of the American economy were about to be completely rewritten? No, not just any little adjustment. I'm talking about a seismic shift in thinking at the most powerful central bank in the world. Let's delve into a fascinating new prediction that suggests we may be on the verge of a radically different economic era .
OK? Let's start with the number that immediately catches your eye: 7700. That's right, that's the target for the S&P 500 by the end of 2026, according to veteran analyst Ed Yardeni. It's a very optimistic prediction, isn't it? So, the question that remains is: how does one get to that point? What needs to be understood is that this is not just an optimistic prediction.
Ardeni's number is not based on the economy we have today. On the contrary, it is based on the idea of a complete turnaround in American economic policy. But what could cause such a profound change? Well, it all comes down to one thing: a potential regime change, a change of command at the Federal Reserve.
A new leader with a completely new philosophy could take control in May 2026. And this is where the central figure of this whole story comes in, the, let's say, possible new architect of the United States economy , a man named Kevin Wash. Eddie Ardney uses a great expression to describe Kevin Wash, a profile straight from the core casting.
And what does that mean in practice? That means he has the perfect resume, you know? Having worked at Morgan Stanley and served on the FED's board , she possesses the institutional presence that markets are familiar with and understand. He's a well-known figure, yes, but the point is that he would arrive with a completely different instruction manual.
And here you can get an idea of how different this manual is. We had Paul Walker, known as the great deflator, then Alan Greenspen, the great asset inflator, and more recently Jerome Power, who is seen as more pragmatic and adjusts as needed. But Worsh, it falls into a different category, the pro offer.
It's clear that this isn't just evolution, you know? It's a real break, a complete departure from the philosophy that has guided the Fed for decades. Okay, so how does it work ? This manual, on the supply side, in practice. What are the details of how a Fed led by Washer would operate? Let's analyze this.
First, just to quickly recap, traditional economics focuses heavily on managing demand, on people's consumption, right? But supply-side economics, well, it turns that logic on its head . The idea here is that the best way to achieve real growth is by stimulating the supply of goods and services. And monetary policy, it comes in as a support.
stable support. Now, look how interesting this quote from Worsch himself is. For him, inflation isn't, you know, that side effect we have to accept when the economy is strong? No. He sees inflation as a choice, a direct result of bad policy. This view, of course, goes completely against the models the Fed has used for years.
And the most famous model of all is the Philips curve. That classic idea that there's always a trade-off. To have low unemployment, it is necessary to accept slightly higher inflation. That's right, WASH simply says that this model is obsolete. It's a relic from the 70s that no longer makes sense in a modern, productivity-driven economy.
It's as if he were taking the old maps, throwing them in the trash, and saying, "OK, we need a new map." So, what would his plan be? It's a kind of strategic commitment. First, aggressively shrink the Fed's balance sheet, which he considers bloated. Second, and this part is somewhat surprising, he would combine this with lower short-term interest rates.
Why? To encourage genuine investment in the economy. And the ultimate goal of all this is to have a Fed that intervenes less, that lets the markets function more freely. Of course, a Fed chairman doesn't do anything alone. Such a radical change needs support. Worsh would have to convince the Federal Open Market Committee, which is the group that votes on interest rates.
And the 2026 committee, by all indications, would be a true battleground of ideas. It's a crazy mix of ideologies in there. On one side you have the Hawks, hawks like Michel Bowman, who want to crush inflation at any cost. On the other side, there are the doves, like Lisa Cook, who are more concerned with unemployment, and in the middle are the centrists like Nil Cascari.
What does this mean? Any important decision will require a great deal of negotiation and compromise, which makes any radical change much more difficult to implement. And as if a completely divided committee wasn't enough, Worsh's term would begin right in the middle of unprecedented institutional turmoil.
This timeline clearly shows a wave of leadership changes at the Fed, with several important terms ending precisely during the transition period. And to add another layer of complication, there's also a legal drama unfolding. There is a case before the Supreme Court questioning whether the President of the United States can simply fire a Federal Reserve Governor for any reason.
A decision that weakens this protection could threaten the independence of the Central Bank, leaving it much more vulnerable to political pressure. So the question is: how would a new Fed chairman manage to navigate through so many challenges? The proposed solution is something called a new Fed Treasury deal.
Basically, it would involve very close coordination between them to ensure that the markets continue to function well. It's an extremely high-risk juggling act, without a doubt. Which brings us back to the beginning of it all, to Yardeni's overly optimistic prediction. All these pieces moving at the same time.
The new leadership at the Fed believes that supply-side policies are the foundation, the cornerstone of their " Roaring Twenties" thesis. The central idea is as follows. A supply-side-focused Fed would create that stable, low-inflation environment that is the perfect breeding ground for a productivity boom driven by artificial intelligence in schools .
The logic is this: the Fed's policy unlocks the AI boom, and that boom fuels a massive increase in corporate profits. And the driving force behind this entire argument is precisely this growth in profits. Yardeni projects that SNP 500 earnings per share will jump nearly 16% in 2026 and then another 13% in 2027, reaching 350.
[snoring] It is this number 350 that, when applied to a market multiple, leads us to that incredible target of 7700. This table here summarizes the complete scenario. In addition to the $7,700 target for the S&P 500, Yardani also sees gold reaching $6,000 an ounce as a hedge. He also expects long-term Treasury bond yields to rise due to strong economic growth and doesn't believe the Fed will cut its main interest rate before at least June 2026.
So, that 's the central point. We are faced with two possible futures, and they are drastically different. On one hand, there's this "roaring 2020s" theory, which points to an era of strong growth, stable prices, and more jobs. But on the other hand, a Fed that intervenes less could create a future with much more uncertainty for savings and life planning. The big question that remains is: which of these paths will be chosen?
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