On June 18, Beijing time, Warsh's first press conference marked a fundamental shift in the Federal Reserve's communication style—interest rates remained unchanged but the tone turned hawkish, inflation became the overriding top priority, and five reform working groups comprehensively reshaped the central bank's framework. These changes indicate that the Federal Reserve, under his leadership, will move towards a more independent, transparent, but also more cautious future.



Interest Rate Decision and Rate Hike Outlook: No Change but Implies Hawkish Signals

The Federal Reserve kept interest rates unchanged at 3.5% to 3.75%, a decision that ultimately passed unanimously. This was Warsh's first policy decision since taking office, and it is particularly noteworthy that the meeting reached complete consensus with no dissenting votes. Warsh emphasized that "there was only one proposal on the table, and no other proposals were discussed," stating that "for us, there was only one core issue, and officials had a heated internal discussion around it (like a family debate)." This indicates that although disagreements existed, a consensus was ultimately reached. On the issue of interest rate hikes, Warsh's attitude appeared calm but subtly hawkish: no one at the Fed wanted a rate hike in the short term, and "none of the 19 people thought there was a need to tighten policy today." When asked if current data supported a rate hike, he replied, "That assessment you expressed is not shared by any of the 19 people present. We will meet again in six weeks to discuss this issue again." This stance is similar to Trump's, who also stated, "The Fed keeping interest rates unchanged is fine. (Regarding the possibility of a Fed rate hike) that could happen." This open attitude foreshadows future rate hikes.

The market reacted strongly to this signal. Traders have fully priced in a Fed rate hike in October, with the yield on the 2-year US Treasury note rising to 4.20%, the highest level since February 2025; the yield on the 10-year US Treasury note rose to 1.11%; and the dollar rose against the yen to 160.75, a new high since July 2024. This indicates that the market believes that although the Fed has not yet raised rates, a tightening policy cycle may be about to begin. Conversely, "Bond King" Gundlach believes that the Fed is unlikely to adjust interest rates before the fall, creating a divergence in market expectations. The Nasdaq 100 fell to its intraday low, the S&P 500 fell 1.2%, the Dow Jones fell nearly 1%, and spot gold fell more than 2% to $4,242, all reflecting the market's digestion of the new monetary policy signal.

Inflation remains the overriding top priority: the five-year target was not met, and now it's time to correct it.

Warsh stated bluntly that "inflation is well above the 2% target," which is the core reality. He emphasized that "persistently high prices are a burden," while noting that "we have failed to achieve our inflation target for five years, and now we must begin to correct it." This phrasing demonstrates that Warsh takes the inflation issue far more seriously than his predecessors; he did not use euphemisms but spoke frankly. He explained the relationship between inflation and monetary policy: "Inflation is primarily determined by monetary policy," therefore the Committee "still has work to do on price stability." The policy implication of this statement is that the Federal Reserve believes it has the responsibility and ability to control inflation through policy adjustments. The Federal Reserve's economic projections chart shows that the Committee significantly revised upward its PCE and core PCE inflation forecasts for this year and next, while also raising its federal funds rate forecasts for the next three years, consistent with Warsh's new assessment of inflation.

Regarding the causes of current high inflation, Warsh believes that "the current high inflation is caused by supply shocks," which is also a key point in his assessment of the inflation framework—"the focus of the inflation framework assessment should be on the drivers of inflation." He emphasizes that "recent history should not be a prelude to inflation problems," intending to show that past experience cannot be simply applied to current judgments, implying that the Federal Reserve needs to abandon old ways of thinking. Regarding the 2% target, Warsh is firm: "The commitment to achieving the 2% inflation target is firm, consistent, and clear," "The Fed has the ability to achieve the 2% target, and that's exactly what they are doing," and "The Committee is 'clearly and consistently' committed to achieving the 2% inflation target." This is a strong commitment, indicating that he wants to convince the market that the Fed is in control. On preventing the spread of price pressures, he points out that "the Fed's responsibility is to ensure there is no secondary price effect," and "it must ensure that price changes in oil, eggs, beef, etc., do not spread throughout the economy," although "the Fed cannot have a significant impact on specific prices." This shows that while distinguishing what the Fed can and cannot do, Warsh is also emphasizing the Fed's responsibilities.

The job market is stable, emphasizing trends over individual data points.

Warsh stated that many of his central bank colleagues generally believe the U.S. labor market remains stable, with some even believing the employment trend is improving. He said, "I think the employment data as a whole has been moving in a positive direction," and noted that "the Committee believes the labor market is stable." This contrasts sharply with market anxiety over employment data—recent U.S. employment reports had briefly sparked concerns about an economic recession, but Warsh's remarks attempted to dispel these anxieties. In assessing employment data, Warsh emphasized a key methodological viewpoint: "Trends are more important than data points," and "The trend over three to six months is more important than any single data point, any single data release." This way of thinking reflects his desire to focus less on short-term fluctuations and more on the long-term employment situation. While U.S. non-farm payrolls remained flat month-over-month and the unemployment rate forecast also remained unchanged, Warsh believes this does not reflect the true employment trend.

However, he also frankly pointed out that the Fed's policy effects are uneven—"Fed policy seems to be restrictive on the housing market, but not on the financial markets," and "the Fed's policy stance is uneven across different sectors of the economy." This observation is significant: Warsh acknowledges that the Fed's policies are having a real effect (the housing market has already felt the tightening pressure), while simultaneously highlighting his concern about this uneven effect. This could become a factor in his future policy adjustments. Overall, Warsh lowered his GDP growth and unemployment rate forecasts for this year, indicating his cautious attitude towards the economic outlook.

Five reform working groups: comprehensively reshaping the central bank framework and reform blueprint

Warsh announced the launch of a reform effort at the Federal Reserve, stating that "the leadership change is a timely opportunity to examine current practices." This sent a clear signal: Warsh's appointment was seen as the beginning of reform, and he did not intend to continue operating the Fed according to existing methods. He would establish working groups in five areas closely related to monetary policy implementation, each bringing together "the best talent from within and outside the economics community."

The first is the Communications Working Group, which is perhaps the most attention-grabbing. "The Communications Working Group may reshape the dot plot," and is expected to ultimately propose "well-thought-out adjustments," potentially including revisions to the Federal Reserve's Summary of Economic Projections (SEP). The SEP includes the "dot plot," which displays the interest rate expectations of 19 senior officials and has been a focal point for the market. Warsh's suggestion that this tool may need redesigning foreshadows a fundamental shift in the Fed's communication strategy. Warsh also stated that "press conferences are an effective way to communicate with American households and businesses," but "did not commit to holding press conferences after every future Fed meeting," suggesting he may change the practice of his predecessors holding regular press conferences.

The second is the Balance Sheet Working Group, which will "review the Fed's bond holdings" and "the benefits and risks of the ample reserve system." This touches upon the Fed's core asset allocation issue. The market had previously widely believed that Warsh might push for a balance sheet contraction path, shifting from an "ample reserve" mechanism to a "scarce reserve" mechanism. However, a sentence in the statement—the Committee "reaffirmed its policy of maintaining ample reserves in the banking system"—cooled these expectations. This indicates that Warsh is not radical in his reforms, but rather is examining the rationale behind existing practices.

The third is the data working group, which studies "the use and reliance on existing data sources." Warsh is particularly concerned about this, pointing out that "most of the data we use employs outdated survey methods." This is a frank criticism, demonstrating his dissatisfaction with the Fed's existing data. He is "open to new data sources" because "private companies rely on real-time information," while "some of the economic data we receive may just be echoes of history." This reflects Warsh's emphasis on private and real-time data; he even stated, "I would be open to suggestions from the Fed's data working group on how to improve official statistics." This implies that the Fed may rely more on private data and new analytical methods in the future.

The fourth is the Productivity and Employment Working Group, which will "investigate the scope of the impact of artificial intelligence and other general-purpose technologies." Warsh considers artificial intelligence "the most significant change he has experienced in the economy since adulthood," a level of importance reflected in the establishment of the working group. He stated that "the committee discussed productivity and artificial intelligence today," indicating that AI has become a key topic of discussion in Federal Reserve policy.

The fifth is the Inflation Framework Working Group. "The Inflation Framework Working Group will review inflation management," but "the 2% inflation target will not be within the scope of the Inflation Framework Working Group." This limitation is interesting: Warsh promised to review the inflation framework, but explicitly stated that the 2% target itself is not within the scope of discussion. He said, "There is no reason to reconsider this target until we reach it," which is an adherence to the Fed's statutory authority.

Warsh stated that "the working groups will begin their work in the coming weeks," and that "partial results are expected by the fall, with each working group completing its work by the end of the year." This timeline indicates his desire to accelerate reforms. The establishment of these five working groups represents a comprehensive rethinking of the Federal Reserve's approach across communication, data, technology, and frameworks, demonstrating Warsh's ambitious reform vision.

Significantly streamlined policy statements and the abandonment of forward guidance: a "mini monetary policy revolution" in communication.

Warsh significantly reformed the Federal Reserve's communication style at this meeting, which was hailed by the market as a "mini monetary policy revolution." He stated that "today's policy statement is shorter and simpler," and that "the statement omits old language and simply states the facts." This is not merely a simplification of words. In fact, the June policy statement was only 132 words long, compared to 345 words in April, a reduction of 62%. The statement's structure also changed: the policy decision was placed first, followed only by a brief overview of the economic situation. Furthermore, the statement completely eliminated information about which officials voted for or against the decision, as well as explanations of their reasons for opposition. This reduction in length also reduced the subtle wording changes that central bank observers had previously analyzed word for word to interpret policy signals.

More importantly, Warsh made a fundamental adjustment to forward guidance: "We have abandoned forward guidance," "Some people believe that providing forward guidance at this time is inappropriate," and "We cannot provide any forward guidance on the next steps." This means that the Fed is no longer trying to guide market expectations for future policy direction, and the market will face more uncertainty. This decision was intentional—Warsh did not want to be bound by forward commitments to future flexibility, and also hoped to avoid the market over-interpreting every word.

On the issue of the dot plot, Warsh expressed personal reservations: "My personal submission of the dot plot doesn't help policy implementation," "The dot plot is drawn in pencil and can be erased," and "I haven't heard anyone express strong confidence in the submission of forecasts." These statements reveal Warsh's skepticism about the tool, but he also stated that "the Federal Open Market Committee has committed to providing forecasts and expects to fulfill that commitment." This indicates that while he has concerns about the existing tool, he will maintain the status quo until reforms are completed.

Regarding press conferences, Warsh believes that "press conferences are a very effective way of communication," but "does not want to predict the outcome of the communication review," and "has not committed to holding a press conference after every future Fed meeting." This suggests he may change the practice of his predecessor Powell holding regular press conferences, instead deciding whether to hold them based on "specific communication objectives." He stated, "I expect a comprehensive review of communication methods by the end of the year, including press conferences, the dot plot, and meeting arrangements," and "I wouldn't be surprised if a new communication framework or adjustments to the summary of economic projections emerge by the end of the year." Natixis commented that Warsh's moves are "overall a hawkish move—interest rates remain unchanged, the dovish bias has been removed, and there were no dissenting votes."

Artificial Intelligence Brings Significant Opportunities and Risks: Understanding its Long-Term Structural Impacts

Warsh considers artificial intelligence (AI) "the most significant economic transformation he has experienced since adulthood," and believes it presents both opportunities and risks. He stated that "the Committee discussed productivity and artificial intelligence today," and therefore the newly established Productivity and Employment Working Group will specifically "investigate the scope of the impact of artificial intelligence and other general-purpose technologies." This indicates that the Federal Reserve is taking this long-term structural change seriously. Regarding the actual economic impact, Warsh points out that "the demand side of AI is being monitored; the supply side is less certain." This assessment is significant: AI may increase demand for computing power (demand side), but its role on the supply side (such as increasing productivity and reducing costs) remains uncertain. However, he remains optimistic about the economic outlook: "If we do our job well, we can achieve strong economic growth, low prices, and strong employment simultaneously." This suggests that Warsh believes that if the Federal Reserve manages inflation correctly, the potential benefits of AI can be fully realized.

Federal Reserve Independence and Market Pricing: New Reflections on Market Signals

Warsh emphasized a key idea: he hoped financial markets would price securities based on their own assessments of the economy, rather than excessively focusing on the Federal Reserve's reactions. He said, "The more the market focuses on real economic changes, the more it can judge for itself which data is more important and which is relatively less important, and the more it can form its own pricing based on what it believes is most likely to happen." He even stated bluntly, "This can avoid a situation where 'financial markets are simply reflecting what we've said.'" This reflects Warsh's concern about excessive central bank guidance of the market; he believes that excessive central bank guidance can actually reduce the market's ability to analyze independently.

Warsh emphasized that "markets and the public must know that the Fed will achieve price stability," which represents a rebuilding of the Fed's credibility. He stated that "efficiency decreases when markets focus too much on the Fed's response mechanisms," and therefore he hopes to change this by reforming communication methods. He reiterated that "the Fed needs a broad perspective, but its responsibilities must be clearly defined," and that "we will not outsource decision-making to anyone." This underscores the Fed's independence. Regarding data, he believes that "financial market prices are the most important source of information guiding central bankers," and that "financial markets react best to data," therefore he is "open to new analytical methods, reforms to private and official data." This demonstrates Warsh's desire to establish a new relationship between the Fed and the market—one of independent decision-making, but also one that fully listens to market signals.

Working with government agencies and market volatility: Maintaining independence amidst political pressure

When asked about his communications with Trump, Warsh said, "I have no information to provide regarding the president." This ambiguous answer suggests he is trying to distance himself from political pressure. However, he was open about the Treasury Secretary. He noted that he had met with Treasury Secretary Bessant, stating that he had met with her three times so far, and even that "the Treasury Secretary posted a photo of us having breakfast together on social media." He emphasized that "the long-standing tradition between the Federal Reserve and the Treasury is that the Fed Chair meets with the Treasury Secretary weekly," and that "the weekly meetings with the Treasury Secretary are very useful." This indicates that Warsh is attempting to maintain independence while communicating appropriately with government departments. He also stated that he "expects a comprehensive review of communication methods by the end of the year, including press conferences, the dot plot, and meeting arrangements."

On geopolitical issues, Warsh said, "What happens in the Middle East does affect our day-to-day work, although it's not our responsibility." This statement subtly delineates the boundaries of the Federal Reserve's responsibilities. Particularly in the context of the US-Iran agreement, the US pledged to provide Iran with access to its frozen funds during the implementation of the memorandum of understanding, while also committing to ending all sanctions against Iran according to the timetable agreed upon within the framework of the final agreement. Warsh believes these geopolitical developments could affect oil prices and other commodity prices, thereby impacting inflation.

Regarding the sharp market fluctuations, he believes that "financial markets need to digest a lot of changes" and that he "will not pay particular attention to the market's reaction in the first few minutes and days." This is a rational attitude—he does not want to be misled by short-term market reactions, but rather looks at the long-term adjustment process. The dollar index rose 1.02%, and the two-year yield on US Treasury bonds rose to 4.15%, reflecting a repricing of Warsh's policy stance.

Overall Economic Assessment and Meeting Outcomes: Building Consensus and Willingness for Reform

In his overall assessment, Warsh stated that "economic activity is expanding at a solid pace," consistent with his expectations for employment and GDP. He emphasized that "this meeting reflected the best traditions of the Federal Reserve," and that "this Fed meeting was a rather harmonious few days." He maintained that "I don't believe we have a brutal choice between full employment and price stability," which contradicts the traditional Phillips curve theory. He believes that with the right policies, the Fed can achieve both objectives simultaneously.

Regarding teamwork, he was "impressed by the openness of my colleagues over the past two days," adding, "I think after discussion, we ultimately reached a better outcome," and "We had a very good internal discussion about it." This demonstrates that Warsh successfully fostered a collaborative atmosphere within the committee, ultimately reaching a consensus despite disagreements (such as half of the colleagues believing interest rates should be lower, and the other half believing they should be higher). Warsh said, "There will be more information at the meeting in six weeks," suggesting that the decisions at the next meeting might be different.

Overall, Warsh's first press conference demonstrated his determination to reform as the new Federal Reserve Chairman and his strong focus on inflation. While maintaining policy stability (interest rates unchanged), he sent a clear signal to the market and the public through measures such as significantly streamlining statements, abandoning forward guidance, and establishing five reform task forces: under Warsh's leadership, the Fed will be more independent, more cautious, and more focused on inflation. The market's reaction was clearly hawkish pricing, suggesting that the Fed's interest rate policy may tighten faster than previously expected.