With Kevin Warsh pushing to modernise the Federal Reserve, markets now have to rethink how AI, liquidity and interest rates might interact in portfolios. Shrinking a $7tn balance sheet, reworking inflation signals and leaning on AI-driven productivity could reward some stocks while making life harder for others that depend heavily on easy money. This article examines three stocks that are especially exposed to these shifts in Fed policy, highlighting one that could potentially benefit from the new playbook and two that may face stiffer headwinds as conditions evolve.

Microsoft (MSFT)

Overview: Microsoft is a global technology company that provides software, cloud computing, AI tools and personal computing products, from Microsoft 365 and LinkedIn to Azure, Windows and Xbox, serving both consumers and enterprises worldwide.

Operations: Microsoft generates about US$135.3b from Productivity and Business Processes, US$128.4b from Intelligent Cloud and US$54.6b from More Personal Computing, with revenue split between the United States (US$162.8b) and other countries (US$155.4b).

Market Cap: US$2.8t

Investors looking at Microsoft in the context of Kevin Warsh’s AI-friendly Fed may focus less on headlines around heavy AI capex and more on the combination of strong earnings, high margins and one of the deepest enterprise AI franchises in the market. The company is pouring billions into Azure data centers, Copilot and in-house AI models, while reporting high profitability and sizable AI-related revenue. This supports the idea that this spending is tied to real demand rather than a speculative bet. At the same time, ongoing antitrust scrutiny, funding structure considerations and recent insider selling are real risks that could matter if sentiment turns. Understanding how these strengths and fault lines intersect is important for anyone evaluating whether Microsoft could be a long term winner from a more AI-aware Fed policy regime.

Microsoft’s AI engine is accelerating, but the real story may be how its cloud, margins and regulation risks fit together, and the 5 key rewards and 1 important warning sign could reveal what the market is still missing

Goldman Sachs Group (GS)

Overview: Goldman Sachs Group is a global financial institution that advises companies and governments on deals and financing, trades a wide range of securities and derivatives, and manages money for institutions and wealthy individuals, while also offering credit cards and transaction banking.

Operations: Goldman Sachs generates about US$42.9b from Global Banking & Markets, US$17.1b from Asset & Wealth Management and US$1.5b from Platform Solutions, with revenue mainly from the Americas (US$37.1b), followed by Europe, Middle East and Africa at US$14.4b and Asia at US$8.9b.

Market Cap: US$315.7b

Goldman Sachs sits at the crossroads of Fed policy and global capital flows, so Kevin Warsh’s push to shrink a US$7t balance sheet and potentially tighter liquidity could bite directly into trading volumes, deal activity and funding costs. At the same time, the company is leaning on AI and higher fee income to steady earnings. While the P/E sits well below the Capital Markets industry average and growth in advisory and asset management points to more stable revenue, funding that relies entirely on external borrowing, a dividend not well covered by free cash flow and recent insider selling all raise questions about how resilient that story is if conditions turn tougher and AI excitement fades around the next earnings cycle.

Goldman Sachs’ low P/E and AI story may be masking deeper funding and dividend pressures that could matter more if liquidity tightens, so the 3 key rewards and 2 important warning signs might be the missing piece investors are not pricing in yet

BlackRock Income Trust (BKT)

Overview: BlackRock Income Trust is a closed end fixed income fund that mainly invests in high quality US bonds, including agency and non agency mortgage backed securities, asset backed securities and US Treasury obligations that are issued or guaranteed by the US government or rated AAA/Aaa.

Operations: BlackRock Income Trust generates about US$12.2m in revenue from closed end fund financial services, all from the United States.

Market Cap: US$341.4m

BlackRock Income Trust may catch the eye of income seekers because it offers exposure to high grade US fixed income and a near double digit dividend yield. However, the picture is less comfortable when you look closer. Earnings and margins have improved recently, but return on equity is only 6.7% and the dividend is not well covered by earnings or free cash flow, which could become a pressure point if Kevin Warsh’s Fed tightens liquidity and bond markets stay volatile. A P/E below the US market and Capital Markets industry hints at potential value, but heavy reliance on external borrowing, underperformance versus the broader market and a long tenured board with no recent refresh leave important questions unanswered about how resilient this vehicle really is under a more demanding Fed regime.

BlackRock Income Trust’s near double digit yield and low P/E could be masking deeper balance sheet and dividend strain, so the 2 key rewards and 2 important warning signs (2 are major!) might surface the risk that turns this income story on its head

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.