Original article | Odaily Odaily( @OdailyChina )
Author｜Azuma ( @azuma_eth )
At dawn on June 18th, Beijing time, the Federal Reserve officially announced its latest interest rate decision. As expected, the federal funds rate remained unchanged within the established range, in line with market expectations.
Over the past few weeks, the market has largely priced in the interest rate path, with little debate. Therefore, the real focus of this interest rate decision is not on whether to cut rates, but on how new Federal Reserve Chairman Warsh will conduct his first policy communication – this is Warsh's first FOMC meeting since taking over as chairman, and the market's first opportunity to observe how he will shape the monetary policy communication framework for the next few years.
The bitmap is still there, but Walsh himself is absent.
The most noteworthy changes at this conference that sparked market discussion came from the economic forecasts and the structure of the dot plot itself.
- Odaily Note: The so-called "dot plot" is a quarterly interest rate projection tool released by the Federal Reserve. Each dot represents an FOMC member's expectation of future interest rate levels. Although these projections are not formal policy commitments, the dot plot has long been regarded by the market as an important reference for interpreting the Fed's policy direction because it reflects the policymakers' overall assessment of the economic and inflation outlook.
In the latest FOMC economic projections, only 18 of the 19 Federal Reserve officials submitted dot plot forecasts. Of these, 1 believes there should be a cumulative 75 basis point rate hikes over the remainder of 2026, 5 believe there should be a cumulative 50 basis point hikes, 3 believe there should be a cumulative 25 basis point hikes, 8 believe interest rates should remain unchanged, 1 believes there should be a cumulative 25 basis point rate cut, and 1 was absent.
In a subsequent press conference, Warsh admitted that he had failed to submit interest rate forecasts. His explanation was: "I didn't submit any of my own forecasts, which is consistent with my long-held view, at least in terms of its current structure."
Compared to his predecessor Powell's highly transparent and frequent communication style, Warsh has long been a representative of the "less talker" faction. He has repeatedly questioned the "effectiveness of the dot plot," "excessive forward guidance," and "frequent policy signals." In Warsh's view, the Federal Reserve does not need to tell the market what it will do next, but should make decisions based on real-time economic data.
Despite market speculation that Warsh might push for reform of the dot plot mechanism, or even abolish it altogether, this meeting suggests that the dot plot has not been directly eliminated. However, Warsh's absence still sends a clear signal—the Federal Reserve is weakening the guiding significance of the dot plot.
Implicit Shift in the Federal Reserve's Communication Framework
At the press conference, Warsh also stated that a series of reforms will be implemented at the Federal Reserve in the future, including the establishment of multiple special working groups to explore more open data collection methods and to study improvements to the Fed's existing statistical indicator system.
During the ensuing Q&A session, when repeatedly pressed by reporters about whether interest rates would be raised next and whether current interest rates were restrictive, Warsh repeatedly refused to provide clear guidance.
For more than a decade, one of the Federal Reserve's core capabilities has been to consistently reduce market uncertainty through the dot plot, the SEP (Summary of Economic Projections), and press conferences. The market closely watches the Fed's actions essentially because they provide a "predictable path."
But Walsh's statements are changing this logic. Clearly, Walsh places greater emphasis on data dependence, decision-making on a meeting-by-meeting basis, and maintains a more restrained approach to future paths.
If this trend continues, the market will face a structural change— the Federal Reserve will no longer attempt to "explain the future," but will only describe "current judgments." This will directly weaken the deterministic function of forward guidance.
Interest rate hike expectations rise, market risk appetite declines.
Following the interest rate decision, the market quickly began to repric the policy path.
After Warsh emphasized that "central banks will not tolerate high inflation," the market began to reassess the upper limit of the Fed's policy response function, namely, whether there is a possibility of more aggressive tightening than previously expected, given that inflation has not yet fallen significantly.
This change is first reflected in short-term assets.
Traders are beginning to bet again on a higher rate hike path, with pricing in some interest rate futures contracts indicating that the market is already discussing a scenario where rates could rise as early as October, while not ruling out tail risks of an even more aggressive path. Polymarket probability data is also rising in tandem, reflecting that the market is pricing in an opening window for another rate hike.
Following the resolution, US stocks fell significantly, with all three major indices closing lower. The S&P 500 (-1.2%) and Nasdaq (-1.3%) both fell by more than 1%, with technology stocks leading the decline and market risk appetite cooling considerably.
Structurally, this round of adjustment is not a "surge in interest rates" driven by a single factor, but rather a more typical triple repricing:
- Short-term interest rates rise: the path to interest rate hikes has been reopened;
- Risk asset pullback: Valuation sensitivity to interest rates amplified;
- A stronger dollar and a fluctuating yield curve reflect rising policy uncertainty.
It is worth noting that the market is not simply trading on "weakening economy" or "disappearance of interest rate cut expectations," but rather on a more complex logic— under the new communication framework led by Warsh, inflation constraints have been raised again, and the "upside tail risk" of the policy path is becoming more real.
In other words, if inflation does not fall rapidly, will the Federal Reserve shift back to tightening sooner and faster than the market originally expected?
Walsh's shift may have only just begun.
In summary, if we only look at the outcome of this meeting, the Federal Reserve has not made any radical shift; interest rates remain unchanged, the dot plot is still in place, and the system continues to function. However, if we shift our focus from "policy path" to "communication style," changes are already beginning to emerge.
Walsh's debut was more like a signal test. He didn't discard the old tools, but he didn't rely on them completely either. He chose to "weaken the effect and reduce the weight".
In the longer term, the biggest question left by this debut is not "whether the Fed will raise interest rates next", but "how the market will repric the world when the Fed stops revealing the market path".
