Decoding the Federal Reserve's new direction: the working group is the "central nervous system" of the Washington reform, setting the new framework for monetary policy by the end of the year.

On Wednesday, Eastern Time, the new Federal Reserve Chair Kevin Wash delivered a speech at the Fed podium for about 43 minutes, with the core message being that he will gradually push the Fed to become more understated, more humble in its interactions with the market and the economy, and ultimately focus all attention highly on the issue of inflation. Wash told reporters, "I have been saying for years that inflation is a choice. There is no doubt about that." Wash added that policymakers will aim to "achieve price stability." He acknowledged that the inflation rate has been consistently higher than the Fed's 2% target, stating, "Persistently high prices are a burden for the American people." Wash believes that his appointment as Federal Reserve Chair means he has been given authorization to push for profound reform, with the goal of preventing the Fed from allowing inflation to spiral out of control. In the first press conference, the Federal Open Market Committee (FOMC), responsible for setting interest rate policies, unanimously voted to keep rates unchanged at 3.5%-3.75%, in line with traders' expectations in recent weeks. However, behind the scenes, many things are changing - even including how the Fed forms its core decisions. Previous Fed chairs would typically provide the committee with multiple policy statement drafts for discussion and selection, but Wash has changed this practice. Wash said, "There is only one proposal on the table. The committee has arrived at a unanimous and clear consensus on this." These changes and other adjustments indicate that Wash is cautiously using his political capital to pave the way for larger scale reforms in the future. The highlight of this meeting was Wash's introduction of a comprehensive reform of the Fed's operations system, announcing the formation of five special task forces covering core functional areas of the Fed, including monetary policy communication mechanisms, balance sheet management, macro data sources and data dependency system, productivity and labor market research, inflation policy framework, and the impact of new technologies such as artificial intelligence on monetary policy. Wash stated that each task force will conduct in-depth reviews around the Fed's core mission of stabilizing prices and ensuring employment. Detailed work plans will be disclosed in the coming days to drive Fed decisions to better suit the future economic environment. He said in the press conference, "Each task force will serve a goal that everyone within the system, as well as all those present at the meetings with me over the past few days, unanimously recognizes," and the goal is to build a Fed that has a "clear understanding of its mission, adapts its goals, and focuses on the future." At the same time, Wash reiterated during the press conference that the 2% inflation target remains the Fed's long-standing core mission, and will not be reconsidered until inflation stability returns to the target range. He admitted that the Fed had failed to clearly convey its commitment to lowering inflation over the past five years, and this institutional reform will focus on repairing communication gaps. In his opening remarks at the press conference and in most of his subsequent exchanges with reporters, Wash detailed these task forces. Each task force will be composed of both internal Fed staff and external experts, and Wash is currently selecting these external experts. Establishing these task forces sounds somewhat similar to the "blue-ribbon committees" in traditional government that make a lot of noise but have little substantive impact, but in reality, they are at the core of Wash's push for Fed reform. As Fed Chair, Wash's power largely comes from the authorization of the Fed Board of Governors and the broader FOMC. Setting up these task forces is essentially an attempt to gradually get other Fed members to actively embrace his way of thinking under the moderate guidance of the external experts he selects. Wash also explicitly refused to submit his economic forecasts to the Fed's Summary of Economic Projections (SEP). The document contains the highly anticipated "dot plot." However, he allows other committee members to continue submitting forecasts, as it was a commitment made by the FOMC in the past. By not disclosing his views on future rate paths, Wash effectively weakened the influence of other Fed officials' forecasts. Now, any discussion about future rate trends must be accompanied by a caveat: the most influential figure at the Fed - the Chair himself - has not expressed his position yet. The dot plot was originally an important tool for the market to assess the Fed's path, but by choosing not to fill it out, Wash is essentially telling the market not to overly rely on this chart for pricing future events. This also allows Wash to avoid a difficult vote on how to reform the communication mechanism immediately. He stated that this vote will be postponed until close to the end of the year, when his communication task force will submit a research report. He mentioned that this process may lead to changes in the full publication of Fed meeting minutes and may even impact the format of the press conference itself. This will further reduce public understanding of the Fed's internal operations beyond the information that the Chair voluntarily discloses. Some of these designs are intentional. Wash refused to comment on the negative market reaction to his speech gradually unfolding, stating that he values the market's unfiltered real response, "We are giving the market a new chapter in central banking history." As expected, the Fed on Wednesday kept the federal funds rate target range unchanged at 3.5%-3.75%. The Summary of Economic Projections released also showed that Fed officials raised the median forecast for the federal funds rate in 2026 from 3.4% in March to 3.8%. This implies that Fed officials expect to implement rate hikes this year. According to the dot plot, out of 19 officials, only 18 submitted forecasts. Among the 18 officials, one believes that there should be a cumulative increase of 75 basis points in the remaining time of 2026, five officials believe there should be a cumulative increase of 50 basis points, three officials believe there should be a cumulative increase of 25 basis points, eight officials believe rates should remain unchanged, and one official believes there should be a cumulative decrease of 25 basis points. While the Fed kept rates unchanged, Wash mentioned "price stability" approximately a dozen times during the press conference, shifting market expectations from rate cuts back to the possibility of rate hikes. In addition, the post-meeting statement was significantly shortened, with less future path hints. With reduced forward guidance, the market will have to rely more on the actual data for pricing. This will make trading more market-driven and may lead to more pronounced fluctuations in short-term rates, growth stock valuations, and yield curves. After the Fed statement was released, the yield on the two-year U.S. Treasury note rose by 16 basis points, indicating that investors believe the Fed may eventually have to raise rates. For the two-year bond, this single-day volatility was quite significant. How investors and the Fed will adapt to this increased volatility in the market remains to be seen. It is worth noting that another risk Wash faces in this reform process is that other Fed members may not necessarily be willing to follow his lead. Part of the reason the Fed operates effectively is the highly decentralized power structure. Fed Governors have terms of up to 14 years and are extremely difficult to remove from office. Regional Fed Presidents also have the right to express their views independently. In the current global economy undergoing profound transformations, choosing to wait and see if inflation continues to deteriorate may be a relatively clear choice for the Fed. However, if Fed officials believe, for example, that Wash is overly emphasizing the positive prospects brought by artificial intelligence and underestimating the risks of rising energy prices, they can fully veto his position in a vote. Wash can manage the internal divisions of the Fed, but he cannot completely eliminate them. However, at least for now, Wash is still able to speak on behalf of the Fed. He promised, "This committee will achieve price stability." If he can do this, then the other reforms he hopes to push for may become easier. (Note: The translation of the article text has been edited slightly for better readability and comprehension.)