On Monday, June 29th, Warsh's first full policy cycle under his leadership, the market is repricing the Fed's reaction function. The Fed meeting on June 17th maintained the target range for the federal funds rate at 3.50% to 3.75%, while the May PCE rose to 4.1% year-on-year, core PCE was 3.4% year-on-year, non-farm payrolls increased by 172,000, and the unemployment rate remained at 4.3%. Short-term interest rates remain close to the policy rate, with the 2-year Treasury yield at approximately 4.11% and the 10-year yield at approximately 4.38%, indicating that the market does not view a decline in inflation as an unconditional path. The core focus of the market is not the five working groups themselves, but whether Warsh will shift monetary policy from "interpreting each meeting" to "rule-based constraints."

Price stability has once again become a hard constraint for policy.

After taking office, Warsh proposed at least five working groups covering communication, balance sheets, data use, productivity and employment in the era of transition, and the inflation framework. On the surface, this appears to be institutional governance reform; from a transaction pricing perspective, it represents a concentrated effort to address the "unclear policy function." At a press conference in June, Warsh explicitly stated that there was no reason to renegotiate the 2% inflation target until the commitment and capacity to achieve it were re-established; he also stated that inflation is primarily determined by monetary policy, and the committee would deliver on its price stability objective.

This means that the market should not only focus on whether interest rates will be adjusted next, but also on whether the Federal Reserve changes its interpretive framework. If policy continues to be vaguely expressed under the guise of "data dependence," short-term interest rates will frequently fluctuate around each inflation and employment data point; if a rules-based framework is formally brought to the forefront, the source of interest rate fluctuations will shift from speculating on officials' attitudes to measuring inflation deviations, employment gaps, and demand growth.

Nominal demand anchors may be more direct than dot plots.

A more penetrating reform would use the nominal GDP trajectory as the core reference for policy communication. Monetary policy tools do not directly control employment or a particular type of price; rather, they first affect aggregate demand, financing conditions, and asset prices. If the long-term real growth center is around 2%, and the inflation target is 2%, then the nominal demand trend should be around 4%. Above this level, the explanatory pressure for a tighter policy increases; below this level, the explanatory space for a policy shift towards easing expands.

The Federal Reserve's June economic projections show a median real GDP growth rate of 2.2% for 2026, an unemployment rate of 4.3%, PCE inflation of 3.6%, core PCE inflation of 3.3%, and a median federal funds rate of 3.8% at year-end. The contradiction implied in these figures is clear: growth has not stalled significantly, the labor market remains resilient, yet inflation is significantly higher than the target. If nominal demand continues to be strong, the narrative of "future inflation naturally declining" will hardly be enough to suppress the term premium.

The change in asset pricing lies in the transparency premium.

Regularization does not necessarily mean higher interest rates, but it does mean less arbitrariness. For the US Treasury yield curve, the short end will reflect inflation and policy rules more, while the long end will reflect the credibility of inflation, fiscal supply, term premium, and global capital allocation. If Warsh's communication reforms reduce ambiguity, the 2-year yield may become more elastic to inflation data; if the market perceives the rules as merely rhetoric, the 10-year yield may compensate for policy uncertainty through a higher term premium.

For risky assets, the key is not whether the Federal Reserve is "friendly," but whether the discount rate is explainable. If the policy response function is clear, earnings expectations can be recalibrated with the interest rate path; if every meeting relies on on-the-spot judgments, the risk premium in valuation models will be forced upward. The current rise in gold ETF prices and limited volatility in long-term bond ETFs also reflect that some funds have not fully accepted the linear narrative of inflation returning to the target.