Warsh "flips the table": No rate cuts, no guidance, no predictions—the Fed's debut leaves Wall Street completely bewildered.
2026-06-18 09:22:05
On Thursday (June 18) during the Asian session, the US dollar index saw a mild correction, currently trading around 100.30, after reaching a two-month high of 100.57 in the previous trading session. The hawkish policy signals from the Federal Reserve provided strong fundamental support for the dollar.
New Federal Reserve Chairman Kevin Warsh will chair the first Federal Open Market Committee (FOMC) meeting on Wednesday, June 17, 2026, quickly ushering in a new phase of policy.
With inflation remaining significantly above target, the Committee unanimously decided to maintain the target range for the federal funds rate at 3.50%–3.75%, while issuing a significantly streamlined policy statement, eliminating forward guidance, and announcing the launch of an ambitious reform review program. This combination of measures marks a significant shift in the Federal Reserve's communication style and policy operations.
Since officially taking over the Federal Reserve last month, Warsh demonstrated exceptional leadership and cohesion in his first FOMC meeting, fostering a high degree of consensus among officials. Despite significant political pressure from the Trump administration's inclination to pursue low interest rates to stimulate economic growth, Warsh consistently prioritized economic data and long-term stability in his decision-making. The meeting ultimately decided to maintain the target range for the federal funds rate at 3.50%-3.75%. This prudent decision clearly conveyed the Fed's independent stance, demonstrating its reluctance to be swayed by short-term external interference and effectively upholding the central bank's policy credibility.
The latest dot plot further reinforces this hawkish signal. Of the 19 policymakers, nine expect at least one rate hike by the end of 2026, a stark contrast to the zero-vote response at the March meeting. The overall PCE inflation forecast for 2026 has been revised upward to 3.6% from 2.7%, while it is projected to fall back to 2.3% in 2027; economic growth forecasts have been slightly lowered, and the unemployment rate is expected to be 4.3% by the end of the year.
Amid the ongoing conflict in Iran, which continues to drive up energy and commodity prices, this shift underscores the Federal Reserve's heightened vigilance regarding sticky inflation and supply shocks. While Warsh downplayed the absolute nature of the dot plot, describing it as "written in pencil and erasable," the market has already interpreted it as a clear indication of the Fed's priority on controlling inflation.
The decision to keep interest rates stable not only lays the foundation for subsequent reforms but also provides global investors with a clear policy anchor.
Analysts point out that Warsh's independent approach helps stabilize expectations in a complex macroeconomic environment and avoids over-politicization of policy. Going forward, the Federal Reserve will use data-driven methods to balance inflation control and economic resilience; investors need to continuously monitor employment, inflation figures, and geopolitical developments.
In his first press conference, Warsh made it clear that forward guidance is "unsuitable" in the current complex economic environment.
He stated bluntly, "I can't tell you what we'll do next. The good news is that we'll have another meeting in six weeks." This statement was directly reflected in the post-meeting statement: the statement was significantly streamlined, returning to the concise style of former Chairman Greenspan's era, with a significantly shorter length, completely eliminating any explicit hints about future policy actions, and retaining only statements of core objectives.
The statement highlighted strong productivity growth and capital investment, while attributing some of the pressure on inflation above the 2% target to supply shocks in specific sectors such as energy, reflecting the Federal Reserve's rational assessment of temporary factors.
This shift in communication style is seen by the market as a profound change. Thomas Simons, chief U.S. economist at Jefferies, commented that with fewer words, the remaining forward-looking statements better reflect two-way risks, marking a return from the lengthy post-crisis model to a traditional pragmatic style.
Although Warsh himself did not submit quarterly forecasts, the hawkish shift in the dot plot has already triggered a rapid market reaction. Interest rate futures are now pricing in a probability of a rate hike as early as September, three months earlier than before the meeting.
Warsh cautioned against over-interpreting the dot plot, but investors have clearly begun repricing towards a "higher interest rates for longer" policy path. This flexible communication strategy helps reduce information noise, enhances the Fed's policy adaptability in uncertain environments, and leaves room for the implementation of subsequent working group review findings. Overall, the statement's adjustments reinforce market confidence in the Fed's professionalism and independence.
At the same time, Warsh announced a comprehensive review of key policy areas of the Federal Reserve, establishing five task forces covering balance sheet management, policy communication, data sources, productivity and employment, and inflation assessment frameworks.
These are precisely the areas that Warsh consistently criticized and focused on during his tenure as a Federal Reserve governor from 2005 to 2011, reflecting his desire to reshape the Fed into a leaner, more efficient, and more selectively communicative institution.
Warsh stated that the working group will launch in the coming weeks, gradually providing analytical frameworks and initial insights starting in the fall, and aims to complete most, or even all, of the review tasks by the end of 2026. To ensure the professional depth of the review, he will invite top talent from within and outside the economics community to participate, providing diverse perspectives and innovative ideas. The balance sheet management working group is particularly noteworthy.
Although Warsh has historically held reservations about large bond holdings, the FOMC statement at this meeting reiterated the policy of maintaining adequate reserves in the banking system, that balance sheets will remain stable in the near term, and that liquidity will continue to be supplemented through Treasury bill purchases.
This comprehensive review project reflects Warsh's long-term reform vision, aiming to optimize decision-making mechanisms, improve data real-time performance and policy transparency, while avoiding unnecessary market distortions. Experts believe this move will help the Federal Reserve better address future complex challenges and inject new vitality into its monetary policy framework. In the short term, the reforms will not trigger drastic adjustments, but long-term results are expected to significantly improve the Fed's operational efficiency and adaptability, providing strong support for the long-term stability of the US economy.
The Federal Reserve's hawkish shift and reform signals quickly transmitted to financial markets. Investors rapidly digested the new reality of "higher interest rates for longer," leading to significant corrections in both the stock and bond markets. Short-term US Treasury yields saw their largest gains recently, with the 10-year Treasury yield rising in tandem. The S&P 500 index fell under pressure, with technology and growth stocks leading the decline. The US dollar index strengthened, further reflecting the market's repricing of the Fed's policy path.
The easing expectations that had been gradually guiding borrowing costs down since the fall of 2024 have completely reversed. With persistent inflationary pressures and escalating geopolitical supply shocks, the Federal Reserve, led by Warsh, prioritizes price stability and has not compromised, even with Trump's preference for low interest rates. This hawkish stance has led to interest rate futures pricing in an earlier rate hike, resulting in a significant increase in market volatility in the short term.
Overall, this meeting shattered Wall Street's illusions about short-term easing, and investors began to allocate assets more cautiously, paying close attention to subsequent economic data.
Analysts believe that while short-term volatility has intensified, Warsh's independent stance helps anchor inflation expectations in the long term, creating conditions for a soft landing for the economy. In the coming period, the market will continue to assess the impact of the working group's progress, inflation readings, and global geopolitical risks on the Federal Reserve's decisions.
At 9:20 AM Beijing time on June 18, the US dollar index was at 100.27.
New Federal Reserve Chairman Kevin Warsh will chair the first Federal Open Market Committee (FOMC) meeting on Wednesday, June 17, 2026, quickly ushering in a new phase of policy.
With inflation remaining significantly above target, the Committee unanimously decided to maintain the target range for the federal funds rate at 3.50%–3.75%, while issuing a significantly streamlined policy statement, eliminating forward guidance, and announcing the launch of an ambitious reform review program. This combination of measures marks a significant shift in the Federal Reserve's communication style and policy operations.
The decision to maintain stable interest rates sends a clear hawkish signal.
Since officially taking over the Federal Reserve last month, Warsh demonstrated exceptional leadership and cohesion in his first FOMC meeting, fostering a high degree of consensus among officials. Despite significant political pressure from the Trump administration's inclination to pursue low interest rates to stimulate economic growth, Warsh consistently prioritized economic data and long-term stability in his decision-making. The meeting ultimately decided to maintain the target range for the federal funds rate at 3.50%-3.75%. This prudent decision clearly conveyed the Fed's independent stance, demonstrating its reluctance to be swayed by short-term external interference and effectively upholding the central bank's policy credibility.
The latest dot plot further reinforces this hawkish signal. Of the 19 policymakers, nine expect at least one rate hike by the end of 2026, a stark contrast to the zero-vote response at the March meeting. The overall PCE inflation forecast for 2026 has been revised upward to 3.6% from 2.7%, while it is projected to fall back to 2.3% in 2027; economic growth forecasts have been slightly lowered, and the unemployment rate is expected to be 4.3% by the end of the year.
Amid the ongoing conflict in Iran, which continues to drive up energy and commodity prices, this shift underscores the Federal Reserve's heightened vigilance regarding sticky inflation and supply shocks. While Warsh downplayed the absolute nature of the dot plot, describing it as "written in pencil and erasable," the market has already interpreted it as a clear indication of the Fed's priority on controlling inflation.
The decision to keep interest rates stable not only lays the foundation for subsequent reforms but also provides global investors with a clear policy anchor.
Analysts point out that Warsh's independent approach helps stabilize expectations in a complex macroeconomic environment and avoids over-politicization of policy. Going forward, the Federal Reserve will use data-driven methods to balance inflation control and economic resilience; investors need to continuously monitor employment, inflation figures, and geopolitical developments.
The policy statement returns to simplicity, and the removal of forward guidance highlights flexibility.
In his first press conference, Warsh made it clear that forward guidance is "unsuitable" in the current complex economic environment.
He stated bluntly, "I can't tell you what we'll do next. The good news is that we'll have another meeting in six weeks." This statement was directly reflected in the post-meeting statement: the statement was significantly streamlined, returning to the concise style of former Chairman Greenspan's era, with a significantly shorter length, completely eliminating any explicit hints about future policy actions, and retaining only statements of core objectives.
The statement highlighted strong productivity growth and capital investment, while attributing some of the pressure on inflation above the 2% target to supply shocks in specific sectors such as energy, reflecting the Federal Reserve's rational assessment of temporary factors.
This shift in communication style is seen by the market as a profound change. Thomas Simons, chief U.S. economist at Jefferies, commented that with fewer words, the remaining forward-looking statements better reflect two-way risks, marking a return from the lengthy post-crisis model to a traditional pragmatic style.
Although Warsh himself did not submit quarterly forecasts, the hawkish shift in the dot plot has already triggered a rapid market reaction. Interest rate futures are now pricing in a probability of a rate hike as early as September, three months earlier than before the meeting.
Warsh cautioned against over-interpreting the dot plot, but investors have clearly begun repricing towards a "higher interest rates for longer" policy path. This flexible communication strategy helps reduce information noise, enhances the Fed's policy adaptability in uncertain environments, and leaves room for the implementation of subsequent working group review findings. Overall, the statement's adjustments reinforce market confidence in the Fed's professionalism and independence.
Launching a comprehensive review across five areas to reshape the Federal Reserve's operating model
At the same time, Warsh announced a comprehensive review of key policy areas of the Federal Reserve, establishing five task forces covering balance sheet management, policy communication, data sources, productivity and employment, and inflation assessment frameworks.
These are precisely the areas that Warsh consistently criticized and focused on during his tenure as a Federal Reserve governor from 2005 to 2011, reflecting his desire to reshape the Fed into a leaner, more efficient, and more selectively communicative institution.
Warsh stated that the working group will launch in the coming weeks, gradually providing analytical frameworks and initial insights starting in the fall, and aims to complete most, or even all, of the review tasks by the end of 2026. To ensure the professional depth of the review, he will invite top talent from within and outside the economics community to participate, providing diverse perspectives and innovative ideas. The balance sheet management working group is particularly noteworthy.
Although Warsh has historically held reservations about large bond holdings, the FOMC statement at this meeting reiterated the policy of maintaining adequate reserves in the banking system, that balance sheets will remain stable in the near term, and that liquidity will continue to be supplemented through Treasury bill purchases.
This comprehensive review project reflects Warsh's long-term reform vision, aiming to optimize decision-making mechanisms, improve data real-time performance and policy transparency, while avoiding unnecessary market distortions. Experts believe this move will help the Federal Reserve better address future complex challenges and inject new vitality into its monetary policy framework. In the short term, the reforms will not trigger drastic adjustments, but long-term results are expected to significantly improve the Fed's operational efficiency and adaptability, providing strong support for the long-term stability of the US economy.
Expectations of a sharp market correction put pressure on both stocks and bonds.
The Federal Reserve's hawkish shift and reform signals quickly transmitted to financial markets. Investors rapidly digested the new reality of "higher interest rates for longer," leading to significant corrections in both the stock and bond markets. Short-term US Treasury yields saw their largest gains recently, with the 10-year Treasury yield rising in tandem. The S&P 500 index fell under pressure, with technology and growth stocks leading the decline. The US dollar index strengthened, further reflecting the market's repricing of the Fed's policy path.
The easing expectations that had been gradually guiding borrowing costs down since the fall of 2024 have completely reversed. With persistent inflationary pressures and escalating geopolitical supply shocks, the Federal Reserve, led by Warsh, prioritizes price stability and has not compromised, even with Trump's preference for low interest rates. This hawkish stance has led to interest rate futures pricing in an earlier rate hike, resulting in a significant increase in market volatility in the short term.
Overall, this meeting shattered Wall Street's illusions about short-term easing, and investors began to allocate assets more cautiously, paying close attention to subsequent economic data.
Analysts believe that while short-term volatility has intensified, Warsh's independent stance helps anchor inflation expectations in the long term, creating conditions for a soft landing for the economy. In the coming period, the market will continue to assess the impact of the working group's progress, inflation readings, and global geopolitical risks on the Federal Reserve's decisions.
At 9:20 AM Beijing time on June 18, the US dollar index was at 100.27.
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