The market is focused on the Federal Reserve's current policy meeting. Multiple factors indicate that Fed Chairman Kevin Warsh is inclined to keep interest rates unchanged, while the Federal Open Market Committee (FOMC) is divided, with three or four members calling for an immediate rate hike, resulting in significant disagreement at this meeting. Although Warsh will eventually need to implement his first rate hike as chairman, multiple current realities support his decision to wait.

Core Reason 1: Policy philosophy does not support immediate tightening.

Warsh advocated for the abolition of forward guidance, refusing to lock in interest rate paths in advance, while simultaneously developing a clear policy analysis framework. Regarding the oil price surge triggered by the US-Iran conflict and the increased semiconductor and electricity costs due to companies investing in AI, Warsh argued that these shocks are one-off price fluctuations on the supply side. He believes that as long as they don't spread to the entire market and create sustained inflation, there's no need to raise interest rates. The June CPI data, which showed a decline before the conflict escalated, further bolstered his confidence to remain cautious. However, there are differing opinions within the committee, with several hawkish members concerned about the spread of price shocks and demanding an immediate rate hike, making this meeting a highly contentious one.

Second key reason: Interest rate hikes may jeopardize the company's own reform plans.

Warsh has formed several special working groups to study key issues such as artificial intelligence and inflation, the Federal Reserve's policy framework, and press conference mechanisms. Research reports are expected to be released gradually by the end of 2026. The purpose of establishing these working groups is to accumulate sufficient evidence and leverage for subsequent policy adjustments. If a rate hike is voted on at the second policy meeting after taking office, it would be tantamount to prematurely negating the significance of the special research. To buy time and ensure the implementation of medium- and long-term reform goals, postponing rate hikes is a better option. If a rate hike exceeds expectations, it would indicate that Warsh judges the inflation crisis to be extremely serious and is willing to sacrifice his favored reform plans to stabilize prices.

Third core reason: Significant political constraints exist.

Warsh repeatedly proclaims monetary policy independence, but cannot completely ignore the Trump administration's stance. Former Federal Reserve Chairman Powell is expected to step down early after the summer's Inspector General's report, bringing the personnel transition window closer. Warsh wants a say in the selection of Powell's successor, but the nomination power rests with the president. A rate hike this week could confirm conservative rumors that Powell is a "shadow chairman," and would also provide Trump with an opportunity to attack the Fed. Meanwhile, there are independent investigations into the handling of the 2023 banking crisis, and these reports could be used to purge members of the Board of Governors; Warsh needs to carefully manage his policy statements.

Market Expectations and Outlook

CME Group data shows the market is pricing in a roughly 30% probability of a rate hike, with uncertainty remaining high. With the withdrawal of forward guidance, the Fed no longer provides clear pre-emptive signals for policy. In the long run, Warsh will inevitably need to initiate his first rate hike during his term, but considering the triple constraints of inflation data, reform plans, and personnel politics, the best short-term strategy is to continue observing. Warsh's remarks at this meeting will clearly reveal his policy response function and guide the interest rate path in the second half of the year.

Summarize

Considering policy philosophy, reform plans, and political maneuvering, Warsh is highly likely to push for unchanged interest rates this week. Pressure from hawkish members within the FOMC has led to significant disagreements at the meeting. Warsh defines price shocks from energy and AI as one-off disturbances and prefers to await the conclusions of the special task force. Coupled with upcoming personnel changes on the Federal Reserve Board, the complex political environment further limits the scope for short-term tightening. This post-meeting statement and press conference will be the most important window for observing the turning point in the Fed's subsequent policy.