On Wednesday local time, newly appointed Federal Reserve Chairman Kevin Warsh kept interest rates unchanged as expected by the market, but the meeting released several unexpected signals, making it difficult for the market to judge the subsequent policy path.

During the period following the resolution's implementation and Walsh's press conference, major U.S. stock market indices fell sharply, indicating a negative market reaction to the meeting's outcome.



The five key takeaways from this meeting are summarized below:

1. Interest rates remained unchanged, but hawkish voices became more prominent.

The federal funds rate was kept within the range of 3.5% to 3.75%, with no objections raised in the vote.

However, the dot plot, which reflects officials' interest rate expectations, shows that many members favor a rate hike this year. The Federal Open Market Committee's views are evenly divided: nine members believe interest rates will remain unchanged or be cut once, while the other nine predict at least one rate hike, with the median expectation pointing to a 25 basis point increase.

2. The Dot Plot Puzzle Revealed: Warsh Did Not Submit Personal Interest Rate Forecasts

Prior to the meeting, the market widely speculated that Warsh would not submit his personal interest rate dot plot forecast, and he himself confirmed this. Successive chairmen have all disliked excessive forward guidance that could constrain subsequent policy operations.

Warsh said, "It is the committee's practice for members to submit their interest rate projections, and I encourage my colleagues to continue doing so. However, based on my long-standing view of the current summary of economic projections framework, I will not provide my own interest rate forecasts."

3. Establish a special task force to initiate reforms to the Federal Reserve system.

Warsh had previously stated on multiple occasions that he would carry out comprehensive reforms of the Federal Reserve, and the first policy meeting saw concrete measures implemented, announcing the establishment of five special working groups to study external communication mechanisms, the central bank's balance sheet, core data sources, productivity and employment, the impact of transformative technologies such as artificial intelligence, and the inflation control framework.

4. A strong stance against inflation, with overall hawkish wording.

Warsh mentioned "price stability" more than ten times during the press conference. He had previously talked about interest rate cuts on several occasions, but this time he made a strong statement that the committee was unanimous and its attitude was clear: to suppress inflation. His hawkish remarks triggered a sharp reaction in the market, with the yield on the two-year US Treasury note, which is highly sensitive to policy, surging by 14.4 basis points.

5. The policy statement has been significantly streamlined, reducing redundant and clichéd language.

Warsh pledged to reshape the Fed's communication model, with the most obvious change being a significant reduction in the length of post-meeting policy statements.

Previous statements from previous chairmen typically exceeded 300 words and were filled with a lot of template phrases, requiring investors to interpret them carefully; this statement, however, is only 130 words long, with concise and clear wording and a significant reduction in vague expressions.

Industry insider opinions:

Rick Rieder, head of fixed income at BlackRock, said, "We believe this Federal Open Market Committee meeting marks a new phase in U.S. monetary policy."

Krishna Guha, head of central bank strategy and economics at Evercore ISI, said: "The new Fed Chair Warsh's remarks at the press conference were reminiscent of the hawkish governor Warsh of yesteryear, repeatedly emphasizing that the Fed must fulfill its statutory mandate to stabilize prices."

"The establishment of the task force indicates that the Federal Reserve is in a phase of comprehensive review and adjustment," said Jason Pride, chief strategist at Glenmead Investments. "The overall operating framework of the central bank during Warsh's term will be significantly different from that of his predecessor, and investors need to be prepared."

Dario Perkins, Managing Director of Global Macro at TS Lombard, said, "Wash wants to establish an initial market impression as a 'reformer,' and the specifics of the reforms will become clear once the various survey results are finalized by the end of this year. For market observers, interpreting the Fed's policies will become significantly more difficult."

Goldman Sachs Vice Chairman and former Dallas Fed President Robert Kaplan stated that if inflation data fails to cool between now and September, a rate hike by the Federal Reserve in September or the fall would be a "wise move" and a more prudent approach. The market turned hawkish after Fed Chairman Warsh hinted at a continued focus on combating inflation. Traders sold short-term Treasury bonds, pushing up some yields. Individual forecasts from Fed members show that half expect a rate hike before the end of the year. Kaplan pointed out that the Fed's policy actions are rarely single operations; rate hikes often occur in series of two or three. Therefore, if action is taken in September, it is necessary to be prepared for one or two more rate hikes.

DoubleLine Capital CEO Gundlach stated that the tone of new Federal Reserve Chairman Warsh's first press conference was more hawkish than many investors had expected, demonstrating his determination to restore price stability and signaling a diminished interest in loose monetary policy. He pointed out that the market had previously anticipated that Warsh might take a more dovish stance, but "he didn't sound like that at all today." At the press conference, Warsh emphasized that "the Committee will achieve price stability" and reiterated his commitment to pulling inflation back to 2% (a level that has not been reached for five years), stating that "this commitment is firm, consistent, and clear." He also refused to submit his personal interest rate projections in the dot plot and hinted at a broader review of the Fed's communication framework. Gundlach believes that Warsh's emphasis on price stability reduces the risk of excessive easing triggering renewed inflation, strengthening the case for holding long-term Treasury bonds. He stated that Warsh has staked his credibility on controlling inflation, thus reducing the likelihood of a significant rate cut, "He must bring inflation down," and long-term bonds no longer need to worry about further pressure from excessive easing.