I found one workaround which works but is not ideal.
I set Midi Guitar Input to Axe Fx, and the output to my built in iMac speakers. I then turn the output level knob on the Axe off completely. This way I hear no signal from the Axe, but its still being sent to the software. The only unfortunate thing is the processed VST sound comes out of my iMac speakers.
The only other thing I can think of is buying a standalone audio interface. Plugging my monitors into that. Then having BOTH the interface AND the AXE plugged in through USB. To do a similar thing as I did above, but having the output be the standalone interface going out to my monitors.
Seems to complex. I believe I remember interfaces such as the focus rites have a button to monitor the direct signal. I'm guessing Axe doesn't have this because not monitoring the signal from the Axe would defeat the whole purpose of having the Axe.