Wall Street on Edge as New Fed Chair Warsh Turns Out to Be a 'Hawk,' Not a 'Dove'

"We Will Achieve the 2% Price Stability Target"
Warsh Signals Determination to Curb Inflation at FOMC
Wall Street: "Fed's Operating Rules Will Change"

Wall Street is on edge as Kevin Warsh, Chairman of the U.S. Federal Reserve (Fed), who was initially expected to display a 'dovish' (favoring monetary easing) stance, has instead shown a distinctly 'hawkish' (favoring monetary tightening) approach since taking office. His announcement to conduct a comprehensive review of the Fed's communication system and policy decision-making process has elicited both anticipation and concern.

Kevin Wash, Chairman of the U.S. Federal Reserve (Fed), is speaking at a press conference after concluding the regular meeting of the Federal Open Market Committee (FOMC) on the 17th (local time). Photo by AP Yonhap News

According to the Financial Times (FT) and U.S. economic media outlet CNBC on June 21 (local time), Chairman Warsh expressed a strong commitment to lowering inflation during the June Federal Open Market Committee (FOMC) press conference. He stated, "We have the ability and determination to achieve the 2% inflation target. That is precisely what we intend to do," adding, "Today, I am declaring that the Committee (FOMC) has clearly and unanimously decided to achieve that 2% goal."

Of the 18 members who submitted interest rate forecasts for this year, 9 expect a rate hike within the year. Accordingly, the interest rate outlook for December (based on the median value) was raised by 37.5 basis points from 3.375% (which previously implied a 25 basis point cut) three months ago to 3.750%. In the previous FOMC meeting, not a single member had forecast a rate hike for this year.

Initially, Chairman Warsh was expected to take a dovish approach, as he was nominated by U.S. President Donald Trump. However, President Trump responded to the Fed’s hawkish decision to keep rates unchanged on June 17 by saying, "It's fine. I don't mind." While he expressed concern that raising rates could "weigh down the country and create a very unusual situation," he also showed confidence in Warsh, stating, "He is an excellent person, so I will follow his lead."

Wall Street has expressed surprise at the hawkish stance. Ed Yardeni, a macroeconomic expert at Yardeni Research, noted in a report published after the FOMC meeting, "We thought Warsh was a dove who favored rate cuts," but "he repeatedly emphasized a strict message on inflation, demonstrating a strong commitment to price stability."

Warsh refused to submit his own dot plot and reduced forward guidance regarding the future path of interest rates. He also launched five task forces to review monetary policy, the balance sheet, and the decision-making system. Kevin Mann, Chief Investment Officer (CIO) of Hennion & Walsh, stated in an interview with Yahoo Finance, "Kevin Warsh has sent a clear signal that a new sheriff is in town," adding, "The Fed's operating rules will change going forward."

Major investment institutions such as J.P. Morgan Asset Management and BNP Paribas have warned that as Fed policy signals decrease, investor uncertainty could rise, leading to higher Treasury yields and risk premiums. This means the market is now more exposed to potential 'surprises.' In contrast, some large investors support Chairman Warsh’s approach, arguing that the market has become overly dependent on central bank guidance. Rick Rieder, Chief Investment Officer (CIO) of BlackRock Asset Management, described this as "a new era in U.S. monetary policy." Some hedge funds also believe that increased volatility could, in fact, create more investment opportunities.

This content was produced with the assistance of AI translation services.