The Federal Reserve stays put as scheduled, Powell's debut signals comprehensive reform, plans to reshape central bank policy framework, three major indexes drop, gold plunges.

Newly appointed Federal Reserve Chairman Kevin Wash presided over his first policy meeting after taking office on Wednesday. The Federal Reserve, as expected by the market, kept the federal funds rate target range unchanged at 3.5%-3.75% for the fourth consecutive time. However, more attention was paid to the reform signals Wash released and his apparent hawkish policy inclination during his first press conference. Interest rates remain unchanged, reform becomes the focus The biggest surprise of this policy meeting was not the interest rate decision, but Wash's announcement of the most comprehensive internal reform at the Federal Reserve in recent years. Wash stated that the Federal Reserve would establish five special working groups, responsible for reviewing communication mechanisms, balance sheet management, data systems, productivity and employment analysis framework, and inflation framework. He stated that the Federal Reserve is entering a new economic environment, where many long-standing policy tools and analysis frameworks need to be reassessed. "We are initiating a comprehensive review," Wash said. "These issues have practical significance and important implications worth studying carefully." According to the plan, the five working groups will officially start in the coming weeks and submit interim results in the fall of this year, with the final report expected to be completed by the end of the year. Market participants believe that this means Wash is not satisfied with just adjusting interest rate policies but is attempting to reshape the operation of the world's most important central bank at the institutional level. From dot plots to economic data, Wash comprehensively reviews policy frameworks One of the most market-focused reform directions is the Federal Reserve's communication mechanism. Over the years, the Federal Reserve has gradually formed a forward guidance system centered around policy statements, the Summary of Economic Projections (SEP), dot plots, and press conferences to manage investor expectations by continuously conveying future policy intent to the market. But Wash clearly wants to change this pattern. The policy statement after this meeting was only about 130 words long, much shorter than the often over 300-word statements during Powell's tenure. The statement deleted a large amount of descriptive content about future policy directions, only retaining core judgments on economic growth, employment, and inflation. Wash stated that future statements should be "shorter, simpler, more focused on facts." He said, "This statement should simply tell the market as accurately as possible what we see, not what we think will happen in the future." More notably, Wash did not submit interest rate forecasts for this meeting. As one of the most important policy signals market participants are focused on, dot plots have long been seen as a crucial basis for judging future interest rate paths. However, Wash believes that these forecasts are essentially personal judgments of officials at a specific point in time. Wash said, "The dot plot is drawn in pencil and can be erased at any time." He also pointed out that submitting his own interest rate forecast wouldn't actually help policy implementation. Analysts believe that this means the Federal Reserve may even reconsider the dot plot system itself in the future. At the same time, Wash also turned his attention to the Federal Reserve's long-relied-upon data system. He mentioned multiple times at the press conference that many official economic data often have significant lags and undergo substantial revisions after publication. He said, "Some of the economic data we receive may just be echoes of the past." Wash stated that in the future, the Federal Reserve will study how to introduce more real-time data and data from the private sector to improve decision-making efficiency. He specifically mentioned that private companies make decisions every day using real-time information, and this data often does not require frequent revisions like official statistics. Furthermore, Wash also announced the establishment of a special working group to study the impact of productivity changes in the age of artificial intelligence on the labor market, wage growth, and inflation formation mechanism. Hawkish signals unexpectedly released, Wall Street reassesses policy prospects In addition to institutional reforms, what surprised the market more was the hawkish signals Wash released during his debut. The latest dot plot released at this meeting showed that out of the 18 officials who submitted interest rate forecasts, nine expected to hike rates at least once this year, with six expecting at least two hikes; while nine expected to keep rates unchanged or cut. Although Wash himself did not submit a forecast, the overall results were noticeably stronger than previously expected by the market. Bob Michele, Chief Investment Officer and Global Head of Fixed Income at J.P. Morgan Asset Management, stated, "Half of the committee members expect to hike rates this year, which is a strong warning to the market. I believe they are preparing to hike rates." Richard Clarida, Global Economic Advisor and former Vice Chairman of the Federal Reserve, stated based on the meeting statement and press conference content, he hardly saw any dovish signals. Frank Flight, Head of Macro Strategy at Citi Securities, also believed that the Federal Reserve is clearly turning towards a more hawkish policy stance. Analysts pointed out that the market had previously believed that after Trump nominated Wash to succeed Powell, the Federal Reserve might lean towards cutting rates. Trump has continually criticized Powell over the past year and has publicly called for the Federal Reserve to lower rates. Therefore, it was widely believed on Wall Street that Wash might be more supportive of a dovish policy stance after taking office. However, the reality proved to be quite the opposite. Bob Michele frankly said that in the current economic environment, cutting rates is almost unrealistic. He said, "Wash is sure to disappoint Trump." One of the key reasons driving the Federal Reserve's turn to a more hawkish stance was that inflation pressures did not ease as much as previously expected by the market. Despite the temporary peace agreement reached between the United States and Iran leading to a slight decline in international oil prices, the inflationary impact of rising energy prices over the past few months continues to spread to various sectors of the economy. Meanwhile, the US labor market continues to show strength. The latest data shows that new job additions in the US have consistently exceeded expectations, the unemployment rate remains low, and wage growth is picking up again. Wash emphasized at the press conference that the Federal Reserve must first rebuild its reputation in controlling inflation. "Until we can prove that we can achieve our 2% inflation target again, I see no reason to reconsider this target." The latest economic forecasts show that Federal Reserve officials have raised their 2026 PCE inflation expectations from 2.7% in March to 3.6%, while core PCE inflation expectations have been raised from 2.7% to 3.3%. At the same time, 2026 economic growth expectations have been slightly downgraded, while unemployment rate expectations have improved. This combination of "higher inflation, decent growth, and stable employment" is leading the market to start betting on future rate hikes once again. In the interest rate market, traders have fully factored in the possibility of at least one rate hike before October, with some investors even starting to bet on a potential hike in September. Compared to the widespread expectation of multiple rate cuts in 2026 at the beginning of the year, the market's expectations have now clearly reversed. US Dollar sees its largest three-month gain Wash's debut caused significant volatility in global markets. After the policy decision was announced, the Bloomberg Dollar Spot Index rose by 0.8% at one point, marking its largest single-day gain in three months. The euro and the pound both recorded their largest declines in nearly three months. The yen fell to 160.79 against the dollar at one point, hitting its lowest level since July 2024. Market data shows that as of June 9, hedge funds, asset management companies, and other institutions held net long positions in the US dollar totaling $27.8 billion, the highest level since February 2025. Elias Haddad, Global Market Strategy Director at Brown Brothers Harriman, said, "This policy decision clearly favors the US dollar, and the latest economic forecasts indicate that inflation risks are rising." Karl Schamotta, Chief Market Strategist at Corpay, believes, "Wash showed a clear hawkish inclination during his first meeting, and the US dollar is now dominating major competitor currencies." Bond markets also experienced significant volatility. The US 2-year Treasury bond yield, which is most sensitive to monetary policy, rose by about 15 basis points at one point to 4.21%, reaching the highest level since February 2025. The sharp rise in short-term yields led to a flattening of the US bond yield curve. Market participants generally believe that this reflects investors pricing in the possibility of future rate hikes while also worrying that higher rates could suppress future economic growth. US stocks came under pressure across the board, with all three major indices declining, and the price of gold falling in sync. By the end of the trading day, the Nasdaq fell by 1.34%, the S&P 500 fell by 1.21%, and the Dow fell by 0.98%; spot gold fell to around 4260. "The Wash era" officially begins For investors, the most important information from this press conference may not be whether there will be future rate hikes, but that the Federal Reserve's decision-making logic is undergoing a change. From shortening policy statements, downplaying forward guidance, questioning dot plots, to restructuring data systems, establishing five major special working groups, and emphasizing the importance of restoring inflation credibility, Wash is pushing the Federal Reserve to transition from "managing market expectations" to "relying on real-time data and economic reality." Compared to the communication framework under Powell's tenure that emphasized transparency and forward guidance, Wash seems to prefer allowing the market to interpret economic data on their own, rather than having the central bank provide the policy path in advance. For the global financial markets, the biggest change in the future may not be the cycle of interest rate hikes or cuts, but the decision-making process and communication logic of this most important central bank in the world are undergoing a profound transformation. Investors will need to adapt to not only a new interest rate cycle but also to a brand new "Wash era."