New Chairman, Old Inflation, Surprise Jobs Data: How Will Global Assets Be Repriced After Walsh’s Debut?

The Federal Open 市场 Committee decided to hold the federal funds rate target range steady at 3.50%—3.75%, with all 12 voting members in favor and no dissenting votes (for further reading: On the Eve of Warsh’s Debut: More Important Than Rate Cuts, How Will the Fed Reshape Expectations?), marking a rather uneventful “hold steady” move.

At the same time, the policy statement was compressed into three paragraphs totaling roughly a hundred words, significantly shorter than in previous meetings. Some phrasing previously used to describe risk balance, future policy adjustments, and data dependency was directly removed, and even the “forward guidance” that markets had become accustomed to for years was eliminated.

Moreover, Warsh explicitly stated in the press conference that the new statement was “shorter, simpler, and removed some old language.” In his view, having lived through the worst of the 2008 financial crisis, the current environment is changing too quickly for the Fed to prematurely commit to future actions. Instead, the focus should shift back to the economic data itself.

This might be the real signal sent by the June FOMC meeting: A Fed under Warsh’s leadership is no longer attempting to reduce uncertainty for the markets but is preparing to return a portion of that uncertainty back to them.

A new communication framework has begun.

1. Rates Unchanged, But the Fed’s Policy Language Has Changed

For many investors, Warsh remains a relatively unfamiliar name.

But he is not new to the Fed. Serving as a Federal Reserve Governor from 2006 to 2011, Warsh witnessed the 2008 financial crisis and the subsequent quantitative easing process firsthand. After leaving the Fed, he was a long-time critic of the central bank’s excessive balance sheet expansion, rampant forward guidance, and the over-intervention of monetary policy in financial markets.

Therefore, compared to lowering market volatility through repeated policy hints, Warsh places more trust in price signals and emphasizes monetary discipline. His core philosophy can be summarized as “the central bank should clarify its objectives but doesn’t need to pre-announce every operational step to the market.”

This approach was fully reflected in his first FOMC meeting.

Besides eliminating forward guidance, Warsh also refused to submit his own rate path in this round of economic projections. He believes the current dot plot is easily misinterpreted by the market as a policy commitment, when in reality, each dot is merely a conditional forecast made by an official based on information available at the time.

He even described the officials submitting their forecasts as using “pencils with large erasers” — predictions can be erased and rewritten as soon as data changes.

However, despite Warsh’s attempt to downplay the significance of the dot plot, the market still perceived a very clear shift. Among the 18 participants who submitted projections this time, 9 expect at least one rate hike by the end of 2026, 8 expect rates to remain unchanged, and only 1 expects a rate cut.

More notably, among the 9 anticipating hikes, 3 expect one hike, 5 expect two hikes, and 1 expects three hikes. The median year-end policy rate projection rose from 3.4% in the March forecast to 3.8%. This implies that in a median scenario, the Fed might not only refrain from cutting rates this year but could actually raise them by 25 basis points.

Concurrently, the Fed significantly raised its 2026 PCE inflation forecast from 2.7% in March to 3.6%, and its core PCE forecast from 2.7% to 3.3%.

In other words, the message from the June meeting was clear: The economy is not weak enough to require rescue, but inflation is too strong to continue discussing rate cuts. This is why the market’s previously anticipated “Warsh rate cut trade” quickly faded following his debut.

Furthermore, when Trump nominated Warsh, markets widely speculated the new chair might be more inclined towards rate cuts than his predecessor. However, Warsh made it clear during his confirmation hearing that the President had never asked him to pre-commit to any interest rate decision, and even if such a request were made, he would not accept it.

As it turns out, Warsh isn’t rushing to prove whether he’s a hawk or a dove. What he first aims to demonstrate is that the Fed still has the capacity to say ‘no’ to inflation.

2. What Kind of ‘Hot Potato’ Did Warsh Inherit?

Objectively speaking, Warsh’s first major challenge remains inflation.

In April, the US headline PCE rose 3.8% year-over-year, and core PCE rose 3.3%, still significantly above the Fed’s long-term target of 2%.

Compounding the issue, the current inflation is not driven by a single factor.

On one hand, energy prices and geopolitical tensions continue to impact upstream costs. On the other hand, supply chains, tariffs, and service prices are creating broader pass-through pressures. If energy price increases further spread to transportation, manufacturing, and consumer spending, the Fed would be dealing with more than just a temporary shock—it would face the risk of inflation expectations re-anchoring higher.

Meanwhile, the labor market remains much stronger than previously anticipated. The May employment report released on June 5th showed non-farm payrolls increasing by 172,000, roughly double market expectations, while the unemployment rate held steady at 4.3%.

Under normal circumstances, this would be welcome data. But in the current environment, “good economic news” was interpreted by the market as “bad news for monetary policy.” On the day of the employment data release, the NASDAQ Composite Index fell 4.18%, its largest single-day drop in over a year. Semiconductor and high-valuation tech stocks were hit hardest, while bond yields rose significantly.

Trump subsequently posted on Truth Social, puzzled: “The jobs report was so good, stocks should go up, not down. That’s been the case for 200 years.“

This precisely reveals the current market’s most paradoxical situation. Warsh hasn’t inherited an economy gasping for central bank life support like during the pandemic, needing unlimited quantitative easing to survive. Instead, he has inherited an economy like that of 1994 — one exhibiting a robust pulse on the surface but carrying the potential for stagflation, an economy that could stall due to a single monetary policy misstep.

Now, raising rates risks crushing the recovery, while cutting risks reigniting inflation. This is precisely his most difficult predicament.

This is also why Warsh’s real challenge isn’t a binary “hike or cut” question, but one of precise timing in policy execution.

It’s worth noting that in April of this year, the Fed saw four dissenting votes, the first large-scale internal dissent since 1992. This division didn’t appear suddenly. Over the past two years, internal rifts within the Fed have been accumulating: Doves argue that the labor market has cooled and rate cuts should begin promptly to prevent a hard landing; Hawks insist inflation hasn’t been truly tamed and that cutting rates would undo all progress.

The unexpectedly large 50-basis-point rate cut in September 2024 ignited intense internal controversy, with then-Governor Michelle Bowman casting a dissenting vote, becoming the first Fed governor in nearly two decades to publicly oppose a chair’s rate decision. Trump’s appointment of new members and pressure on the Fed’s independence have further injected political color into monetary policy discussions.

Therefore, Warsh takes the helm of a committee deeply divided on policy direction. While the chair has changed, the accumulated disagreements haven’t dissipated. Warsh hasn’t just inherited a position; he’s inherited a powder keg that could explode at any public meeting.

Building internal consensus is, in itself, the first real test Warsh faces.

3. How Are Global Assets Being Repriced?

For markets, the hawkish undertones of this FOMC meeting also served as a stock market indicator.

The most direct interest rate trades are, naturally, the US dollar and US Treasuries.

On the asset level, the logic for the US Dollar Bull ETF (UUP.M) is relatively straightforward. Higher expectations for the policy rate typically widen the yield advantage of US assets over other currency-denominated assets. Consequently, the US Dollar Index rose about 0.5% following the June FOMC, reflecting the market’s repricing of potential rate hikes.

The environment for the Intermediate-Term Treasury ETF (IEF.M) is more complex. As bond prices move inversely to yields, if inflation forecasts continue to be revised upwards and the market bets further on rate hikes, medium-term Treasury yields may remain elevated, putting pressure on IEF.M.

However, this doesn’t mean US Treasuries are on a one-way downward trajectory. If employment or consumer data suddenly weakens, triggering recession fears, risk-off funds could quickly flow back into Treasuries. Thus, what influences Treasuries isn’t just whether the Fed’s next move is a hike, but also how the market assesses growth prospects following any potential hike.

Gold ETFs (GLD.M, IAU.M) present a relatively perplexing asset for current positioning. High real interest rates theoretically suppress gold, but geopolitical risks in the Middle East and continued central bank purchases provide a countervailing support. With these two forces pulling in opposite directions, gold is better understood as a hedging exposure rather than an offensive allocation.

Silver ETFs (SLV.M, SIVR.M) have an additional industrial demand logic compared to gold. AI infrastructure’s pull for electricity infrastructure and industrial metals provides silver with independent demand support beyond its monetary attributes, giving it an extra buffer layer under similar macroeconomic pressures compared to gold.

The impact of high interest rates on the AI infrastructure theme can be broken down into two layers; it’s not as simple as saying “rate hikes spell doom for AI infrastructure”:

• Firstly, valuation pressure: Stocks like semiconductor equipment makers (LRCX.M, KLAC.M), optical communication companies (LITE.M, AAOI.M), memory chip makers (MU.M, SNDK.M), and power infrastructure firms (VRT.M, GEV.M) have valuations based on revenues expected to materialize over several years. Higher interest rates mean higher discount rates, lowering the present value of future cash flows.
• Secondly, capital expenditure risk: Cloud providers’ AI CapEx is the lifeblood of the entire chain. In a high-interest-rate environment, financing costs rise. Will cloud providers tighten their budgets? For now, CapEx at Microsoft, Google, and Amazon continues to expand, so the demand-side logic hasn’t changed due to rate hikes. Furthermore, rates suppress valuations, but order volumes haven’t decreased. As long as cloud CapEx doesn’t contract, the industrial logic for AI infrastructure remains intact; only the scope for valuation expansion is compressed. We can draw this conclusion by reviewing Google’s performance in Q1 2026.

The defense sector also possesses certain defensive attributes.

Companies like LMT.M, NOC.M, and RTX.M derive most of their revenue from long-term government contracts, offering higher visibility on orders and cash flows compared to high-valuation growth stocks. In an environment with elevated rates favoring cash flow certainty, defense assets may gain a relative advantage.

However, this doesn’t mean defense stocks are completely immune to interest rates. Rising yields can still suppress their valuations. What truly provides support is the policy certainty of defense budgets and long-term contracts, not absolute immunity from interest rate risk.

4. Looking Ahead, What Should the 市场 Really Focus On?

Warsh’s first FOMC provided an initial answer: The Fed is not ready to continue mapping out every step of the policy path for the markets. Future volatility will be more driven by the data itself.

But this is just the beginning. Over the next few months, several key milestones warrant sustained attention from investors.

First is the June non-farm payrolls report on July 2nd. This is the first full-month employment report under Warsh’s tenure and the most significant labor market signal he will receive before the July meeting. If job growth remains strong, the window for rate cuts closes further, and talk of hikes could transition from expectation to reality. If the data significantly weakens, market expectations regarding the monetary policy path could loosen, creating room for repricing the logic of rate cuts.

Therefore, this single data point could directly determine the tone of the July meeting.

Second is the June CPI report, due in mid-July. This is the most unignorable data point between the two FOMC meetings. Warsh made it clear in the press conference that price stability is the primary objective. If CPI remains stubborn, his stance at the July meeting will only become more hawkish. If inflation shows a material decline, the market will become divided on his next move. Either way, this data release will trigger significant volatility on the day it’s published.

Finally, the second FOMC meeting on July 28-29 might be Warsh’s first truly 定义nitive interest rate decision. By July, armed with accumulated data from the non-farm payrolls and CPI reports, he will need to make a real policy choice. By then, the market will have a clearer picture of his inclinations, and the overall directional outline will be more complete.

Of course, the midterm elections in the second half of the year represent a longer-term variable. As the election approaches, the tension between the White House and the Fed is bound to amplify again. Trump’s desire for rate cuts won’t disappear, and Warsh’s statement during the hearing — “I won’t agree” — will be repeatedly tested with each escalation of political pressure.

The proposition of monetary policy independence will remain a persistent background noise for markets throughout the second half of the year.

本文来源于互联网： New Chairman, Old Inflation, Surprise Jobs Data: How Will Global Assets Be Repriced After Walsh’s Debut?

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