At the Sintra Central Bank Forum, the market hoped to glean clues about the Federal Reserve's next policy move, but ultimately only came to a clear conclusion: Federal Reserve Chairman Kevin Warsh intends to significantly reduce the release of policy signals.



This was Warsh's first public appearance outside the United States since becoming Federal Reserve Chairman. Facing market expectations, he consistently refused to provide the policy hints investors wanted. He remained silent on the timing of future interest rate hikes and cuts, instead further solidifying the new communication strategy announced at the first Federal Open Market Committee (FOMC) meeting in June: abandoning forward guidance, prioritizing price stability, and comprehensively reviewing the Fed's monetary policy implementation framework.

While this statement did not provide immediate policy signals, it did outline the core logical framework for investors to analyze future policies.

Completely abandon forward-looking guidance and never budge.

Ahead of the Sintra ECB Forum, the market widely speculated that Warsh, speaking alongside other global central bank leaders such as ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem, might soften his stance on external communications.

But the reality is quite the opposite. Warsh again avoided discussing the future direction of interest rates and publicly defended the Fed's decision to abandon forward guidance. He reiterated his views after the June FOMC meeting: central banks should not deliberately guide the market to predict a fixed policy direction.

Many investors had hoped that the Sintra Forum would provide new policy guidance for the July FOMC meeting, but Warsh's message was very clear: the Fed will now rely entirely on economic data to guide market expectations, rather than on verbal statements from the central bank.

Curbing inflation remains the Federal Reserve's top priority.

Although Warsh avoided discussing future interest rate adjustments, he remained clear on the Fed's stance on its inflation target. He stated, "The Fed's core mission is to maintain price stability," and emphasized that current U.S. inflation remains "too high."

Warsh acknowledged that inflation expectations and upside risks to inflation have eased somewhat in recent weeks, but he made it clear that this would not change the Fed's core policy objectives. He added, "Anyone who thinks the Fed will accept inflation above 2% is going to be disappointed."

This statement continued the hawkish tone he adopted at his first FOMC press conference. While acknowledging some improvement in inflation trends, he showed no inclination for the Fed to tolerate inflation remaining above the target range for an extended period.

He reiterated that restoring price stability is the Federal Reserve's overriding top priority.

Artificial intelligence has become a core policy issue.

Artificial intelligence was the only area Walsh actively explored in depth during his speech. He suggested that the United States is highly likely to be one of the biggest beneficiaries of the AI revolution, and that the industry is currently only in its "first and second stages." At the same time, he emphasized that the Federal Reserve has a responsibility to assess whether AI will ultimately push up or suppress inflation.

These views align closely with the plans of the special task force established by the Federal Reserve after its June meeting, which includes a dedicated group to study productivity and employment. Warsh no longer views artificial intelligence simply as a technology sector issue, but is gradually incorporating it into the Fed's comprehensive assessment system for long-term economic growth, productivity, and inflation.

In the short term, AI-related analysis will not directly affect monetary policy, but in the long term it may change the Federal Reserve's benchmark for calculating potential economic growth and equilibrium interest rates.

Institutional structural reforms continue to advance

In addition to monetary policy, Warsh reiterated that internal institutional reforms at the Federal Reserve remain a key focus. He stated that the Fed will "forge a new path" to optimize the policy-making process and revealed that the heads of the newly established special policy task forces will be announced as early as next week.

Regarding balance sheet management, Warsh stated that the policy stance will remain consistent and will not be significantly adjusted. His views have not changed since taking office a month ago, while emphasizing that any future adjustments will be carefully assessed and clearly communicated to the public in advance. He reiterated that balance sheet tools have always been a lower priority than interest rate tools, stating that balance sheet operations are "closely within the scope of fiscal policy," and that interest rates are the Fed's most core monetary policy tool.

The remarks were unsurprising; the market merely confirmed the existing policy tone.

Before heading to the Sintra Forum, investors had hoped that Warsh's first international public speech as the new Federal Reserve Chairman would provide insight into his policy response logic. However, the entire speech merely confirmed the existing stance released at the June meeting.

Warsh maintains his stance of downplaying forward guidance; prioritizes price stability; assesses the overall strength of the labor market and the resilience of supply chains; and believes the US is well-positioned to benefit from the development of artificial intelligence. He also emphasizes that the Fed's policy independence will not waver, even under continued political pressure.

The speech did not substantially change the market's assessment of the overall policy outlook. The Forex Street Fed Sentiment Index barely fluctuated after the speech; it remained in the moderately hawkish range, reflecting that the Fed's policy stance was merely a continuation of the past and had not undergone a substantial shift.

Ironically, this was precisely the core message released at the Sintra Forum. The market was initially highly tense, believing that every word Warsh uttered concealed policy implications; however, the most crucial signal Warsh ultimately conveyed was that the Fed's new communication strategy, as previously promised, would reduce policy signals, increase uncertainty about future policy direction, and rely more firmly on economic data rather than verbal guidance from the central bank to guide market expectations.