沃什首秀前瞻：点阵图或迎来鹰派转向，前瞻指引弱化恐加剧市场波动

Original source: Jin10 Data

The Federal Reserve will announce its latest interest rate decision at 2:00 AM Beijing time on Thursday. Half an hour later, the newly appointed Chairman Kevin Warsh will hold his first press conference since taking office. The market has fully priced in the expectation that the committee will keep the benchmark interest rate unchanged at this meeting.

The market's focus is not simply on the rate adjustment itself, but on three core themes: the variable dot plot and the interest rate path for the year, the controversy over the Fed's policy independence, and the comprehensive reform of the central bank's communication system championed by Warsh. Opinions among various market analysts are sharply divided.

Major Changes Expected in Dot Plot, Polarized Views on Full-Year Rate Path

The market expects that the upcoming quarterly Summary of Economic Projections (SEP) dot plot will show a clear hawkish shift, forming a sharp contrast with the March meeting three months ago.

In March, the vast majority of Fed officials anticipated cutting interest rates within the year. However, this time, most policymakers are expected to believe that rates should remain unchanged for the entire year, with a few committee members potentially marking rate hikes on the dot plot to guard against persistently high inflation becoming entrenched.

Persistent changes in employment and inflation data have completely reversed the direction of committee discussions. Previously, the focus of FOMC debate was when to cut rates; now, the topic has shifted to whether rate hikes need to be restarted.

This dot plot will simultaneously update economic forecasts. Michael Feroli, Chief US Economist at JPMorgan, expects Fed officials to lower their year-end unemployment rate forecast to 4.3%, consistent with the actual unemployment rate over the past three months. At the same time, they will raise their core PCE inflation forecast to 2.9%. Some economists even predict this indicator could break above 3%, providing fundamental support for hawkish expectations.

Major institutions are deeply divided in their judgments on the full-year interest rate path. Economists at PGIM believe the year will require three rate hikes to curb inflation. In stark contrast, Citigroup, relying on assumptions of a US-Iran ceasefire and falling oil prices, predicts the labor market will weaken and expects the Fed to cut rates three times over the year.

Krishna Guha, an analyst at Evercore ISI, pointed out that Warsh must strike a delicate balance this time. Being too hawkish would fuel rate hike expectations and weigh on the stock market, while being too dovish would lead to rising long-term yields and breakeven rates, which would also be negative for risk assets.

An Unknown Factor: Will Warsh Submit His Personal Rate Forecast?

The biggest suspense of this SEP is whether Warsh himself will fill out and submit his personal interest rate projections. The market has four different predictions.

Richard Moody, Chief Economist at a regional bank, and analysts at TD Securities judge that Warsh will forgo submitting a rate forecast, using this as a way to express his disapproval of this guidance tool and to weaken the inherently hawkish signal of the dot plot.

Feroli believes Warsh must submit a projection, arguing that a deliberate absence would be seen as an open confrontation with the committee.

Some analysts predict Warsh will participate in submitting projections, but will initiate a comprehensive review of the entire central bank communication mechanism after the meeting, potentially leading to the abolition of the dot plot, which was introduced in 2012, in the long run.

Another possibility is that Warsh, having been in office for only three weeks, will postpone filling out the forecast, citing insufficient familiarity with the work.

Absence from the dot plot also carries a layer of political risk: Stephen Miran, a former governor appointed by Trump who was previously the committee member with the lowest interest rate projection on the dot plot, has now left office. If Warsh's submission fails to fill this gap in dovish expectations, the market will immediately conclude that his policy stance is far more hawkish than what Trump had hoped for.

Doubts Over Fed Independence

At the beginning of the year, the market collectively bet on rate cuts. However, in recent weeks, expectations for rate hikes have rapidly increased following the rebound in inflation and energy prices, completely diverging from the Trump administration's calls for rate cuts.

Kevin Grady, President of Phoenix Futures and Options, stated that Warsh's policy framework will continue the data-driven logic of his predecessor, Jerome Powell, and will not change his judgment due to demands from the White House.

However, Darin Newsom, Senior Market Analyst at Barchart.com, holds a completely opposite view, stating outright that the Fed's credibility has completely collapsed after Powell's departure. Trump has publicly expressed a favorable view of rising inflation, sending a clear signal of intervention. Currently, Fed funds futures have pushed back rate hike expectations to December, meaning no tightening will occur before the November midterm elections.

Newsom believes Warsh's core task upon taking office is to execute the White House's directives. Even if there are dissenting votes within the FOMC, Trump has already placed numerous like-minded officials on the committee. All of Warsh's statements at the press conference emphasizing the central bank's independence will be seen as empty rhetoric. Global investors will no longer believe them, which is also the core reason central banks around the world continue to increase their gold holdings.

He stated that Trump cares more about the timing of policy adjustments than the action itself. Since inflation concerns persist, the desire for rate cuts cannot materialize in the short term. Therefore, Warsh might only maintain the status quo. If inflation problems persist, rate hikes could be delayed until early 2027.

Daniel Pavilonis, Senior Commodities Broker at StoneX Group, noted that a US-Iran peace agreement has become a key external variable capable of changing the inflation outlook throughout the year and internal divisions within the Fed. If an agreement is successfully reached, shipping through the Strait of Hormuz would resume, massive amounts of crude oil would flood the market, and the pullback in oil prices could exceed expectations. Historically, crude oil has plummeted by $30 within four weeks; such a geopolitical détente this time would quickly lower the overall inflation reading.

Pavilonis expects that as inflation cools, the stance of hawkish dissenting committee members who advocate for rate hikes will gradually become neutral. At the same time, he predicts that the Trump administration will introduce various policies to prop up the stock market before the November midterm elections to maintain capital market momentum.

Weakening Forward Guidance May Increase Market Volatility

Even before taking office, Warsh repeatedly criticized the current communication framework in congressional testimonies and IMF speeches. He believes that the Fed overly discloses its policy roadmap, and the frequent public speeches by officials make the central bank a hostage to its own words, losing flexibility to adjust when the economic environment changes, turning policymakers into 'prisoners of their own pronouncements.'

Former Fed Chair Ben Bernanke once said that monetary policy is 98% communication and 2% action. Warsh wants to completely rewrite this model. His core idea is to significantly reduce market forward guidance and compress the scale of public information disclosure.

William English, a Yale University professor and former FOMC secretary, warned that a drastic reduction in the communication mechanism carries significant risks. A rapid decline in transparency could exacerbate financial market volatility, making policy adjustments more likely to surprise the market.

Based on Warsh's statements and simulations by several institutions, the communication reform has multiple possible implementations:

• Streamline the quarterly SEP, even gradually abolishing the dot plot;
• Significantly shorten the text of the FOMC statement released after meetings;
• Reduce the number of press conferences following rate-setting meetings; the current system holds eight per year, a practice dating back to 2011;
• Curtail the frequency of public speeches by Board of Governors officials; in recent years, the annual number of speeches by Fed officials has increased by 20% compared to two decades ago.

Cindy Beaulieu, Chief Investment Officer for North America at GLW, believes that if the dot plot is abolished and press conferences are reduced, bond market volatility will rise significantly, and every single economic data release will trigger excessive market speculation.

Claudia Sahm, a former Federal Reserve economist at New Century Advisors, commented that the ambiguous communication model championed by Warsh is reminiscent of the Greenspan era. Greenspan was known for his deliberately vague communication strategy, but even during his tenure, transparency reforms at the central bank had already begun. Events like the 2013 Taper Tantrum proved that completely ambiguous communication can easily trigger sharp market sell-offs. Today, most Fed watchers agree that moderate transparency is more conducive to stabilizing expectations.

Don Kohn, former Vice Chairman of the Federal Reserve, pointed out that once a central bank's communication mechanism is modified, it is very difficult to reverse course. If the reform triggers sustained market turmoil, the subsequent cost of correction would be extremely high. Therefore, any adjustment would require broad consensus among all FOMC members.

He stated that the SEP, introduced in 2007, can be adjusted or abolished without a committee vote. However, to avoid expending consensus on secondary issues like the dot plot or guidance, Warsh will likely refrain from implementing radical changes all at once, opting instead to proceed with phased reviews and optimizations.

Market Bets on Warsh's Policy Guidance, Long-Term Gold Bull Market Intact?

John Murillo, Chief Commercial Officer at B2BROKER, stated that the catalyst for market movement at this meeting is not the rate decision itself, but the Fed's policy guidance, with the core focus on whether Warsh will reinforce the view of maintaining tight policy until 2027.

He noted that if the dot plot or policy statement releases unexpectedly hawkish signals, asset prices will follow a fixed transmission sequence. The US Treasury market will react first, with rising real yields pushing bond yields higher, and the short end of the curve experiencing the most violent fluctuations. Stronger yields will support a stronger US Dollar Index and directly pressure gold.

However, Murillo cautioned that short-term policy shocks from the Fed will not reverse the long-term upward trend for gold. Three major structural positives continue to support the allocational value of precious metals: ongoing central bank gold purchases for reserve diversification, sustained demand for safe-haven assets due to geopolitical conflicts involving Iran, and persistent US fiscal deficits driving capital flows into hard assets. Even if the meeting releases hawkish signals causing gold prices to weaken, any downside movement will only attract medium-to-long-term buying interest, making a sustained bear market unlikely. Over the long term, structural demand will be the core factor determining gold's price trajectory.