Walsh's Show for the Future: Point a line or lead to a hawk turn and guide forward to weaken to increase market volatility

Original source:Kim Xian data

The Fed will publish the latest interest rate resolution at 2 a.m. Beijing time, and the new president, Kevin Walsh, will be in office in half an hour’s time for the first press conference, and the market has fully priced the current meeting to maintain the benchmark interest rate。

Market focus is not simply interest-rate adjustment, but is the three main core lines: point-line map variables and interest-rate paths over the course of the year, the Federal Reserve’s policy independence dispute, and a comprehensive reform of the system of central bank communication driven by Walsh. The views of market analysts varied significantly。

There are major variables on the dot map, and there are bipolar expectations on the interest rate path for the year

THE UPCOMING QUARTERLY SUMMARY OF ECONOMIC PROJECTIONS (SEP) DOT-LINE MAP OF THE MARKET IS EXPECTED TO UNDERGO A MARKED HAWK SHIFT IN CONTRAST TO THE MARCH MEETING THREE MONTHS AGO。

In March, most Federal Reserve officials pre-judged a reduction in interest rates during the year. Most policymakers this time are expected to maintain interest rates throughout the year, with a few members, or in a dot map, marking interest increases to guard against continued inflation。

THE CONTINUING CHANGES IN EMPLOYMENT AND INFLATION DATA HAVE REVERSED THE COURSE OF THE COMMISSION ' S DISCUSSIONS, AFTER THE FOMC DEBATE FOCUSED ON WHEN INTEREST RATES FELL, AND NOW THE ISSUE HAS SHIFTED TO WHETHER THERE IS A NEED FOR A RESUMPTION OF INTEREST RATES。

This dot map will simultaneously update economic expectations. Michael Ferroli, the chief American economist at Morgan Chase, predicted that Fed officials would lower the annual unemployment rate to 4.3 per cent at the end of the year, in line with the actual unemployment rate of the last three months; and that the core PCE inflation was expected to rise to 2.9 per cent, with some economists even predicting a 3 per cent breakthrough to provide the basic support expected by the Eagles。

LARGE INSTITUTIONS ARE TORN APART BY THEIR DETERMINATION OF THE ANNUAL INTEREST RATE PATH. PGIM ECONOMISTS ARGUE THAT IT TAKES THREE HIKES DURING THE YEAR TO CONTAIN INFLATION. IN CONTRAST, THE FLAG, JUDGED BY THE TOMIE TRUCE AND THE FALL IN OIL PRICES, WILL WEAKEN THE LABOUR MARKET AND THE FED IS EXPECTED TO REDUCE INTEREST RATES THREE TIMES THROUGHOUT THE YEAR。

Evercore ISI analyst Krishna Guha pointed out that Walsh had to strike a delicate balance this time, stating that the eagle would push up interest-rate expectations and crush the stock market, and that the long-term yield and profit-loss balance of the dove would rise, with the same risk asset。

Unknown factor: Has Walsh submitted a personal interest rate forecast

THE BIGGEST SUSPENSE OF THIS SEP IS WHETHER WALSH HIMSELF FILLED IN AND SUBMITTED THE EXPECTED INDIVIDUAL INTEREST RATE POSITION, WITH FOUR DIFFERENT PROGNOSIS IN THE MARKET。

The Chief Economist of the Regional Bank, Richard Moody, and the Analysts of TD Securities, judged that Walsh had given up submitting interest rate forecasts as an expression of rejection of the guidance tool, a weak dot map with its own Eagle signal。

Ferroli argued that Walsh had to submit points and that the intentional absence would be considered an open opposition to the Committee。

Some analysts pre-judged Walsh’s involvement in the submission, but after the meeting, the entire central bank communication package was re-engineered, or the dot map, launched in 2012, would be abolished in the long run。

Another possibility is that Walsh will be in office for only three weeks, suspending the projection on the grounds that he is not fully familiar with the job。

There is also a political risk associated with the absent-point array: Stephen Milan, a former director appointed by Trump, who had previously been the member with the lowest expected interest rate in the slot, has now resigned. If the point presented by Walsh fails to fill this loose expectation gap, the market will immediately determine that its policy stance is far more hawk than Trump expected。

The Fed's independence is in doubt

At the beginning of the year, collective interest rates on the market fell, but in recent weeks they were expected to rise rapidly after inflation and energy prices rebounded, in complete contradiction to the Trump government's call for a reduction in interest rates。

Kevin Grady, the CEO of Futures in Phoenix, stated that the Walsh policy framework would continue the data-driven logic of former Powell and would not change judgement in response to White House claims。

But Barchart.com’s senior market analyst, Darin Newsom, took the exact opposite view, stating that the Fed’s credibility collapsed after Powell left office. Trump publicly welcomed inflation and sent a clear signal of intervention, and the interest rate hike on futures from the federal funds has now been postponed to December, with no tightening of the policy until the mid-November elections。

NÜRSHAM BELIEVED THAT THE CENTRAL TASK FOR WALSH WAS TO IMPLEMENT THE WHITE HOUSE DIRECTIVE, AND THAT, EVEN IF FOMC HAD VOTED AGAINST IT, TRUMP HAD DEPLOYED A LARGE NUMBER OF UNANIMOUS OFFICIALS TO THE COMMISSION. ALL THE SPEECHES AT THE WALSH CONFERENCE THAT EMPHASIZED CENTRAL BANK INDEPENDENCE WERE RHETORICAL AND GLOBAL INVESTORS NO LONGER ACCEPTED, WHICH IS THE CENTRAL REASON WHY CENTRAL BANKS CONTINUE TO INCREASE GOLD。

He said that Trump was more concerned with the timing of the policy adjustments than with the actions themselves, and that since inflation concerns remained and interest-rate claims could not be set aside for the short term, Walsh might only be able to maintain the status quo, at which point the increase could be postponed until early 2027 if inflation continued。

According to Daniel Pavilonis, Senior Commodity Broker of StoneX, the US-Iraq Peace Agreement has become a key external variable in changing annual inflation and internal Fed differences. If the agreement goes smoothly, shipping in the Straits of Hormuz resumes, large volumes of crude oil enter the market, and oil prices reverse or exceed expectations; historically, crude oil has fallen by $30 in four weeks, and this geo-situation decomposition will rapidly reduce overall inflation readings。

Pavilonis predicts that after inflation cools, the hawk dissidents in the Committee, who advocate higher interest rates, will be gradually neutral. At the same time, he predicted that the Trump government would put in place a policy of various types of stock holding markets in the run-up to the mid-November elections to keep the capital market hot。

Long-term direction for weakening and increasing market volatility

THE CURRENT COMMUNICATION FRAMEWORK WAS CRITICIZED SEVERAL TIMES IN THE PARLIAMENTARY HEARINGS, IN THE IMF’S SPEECH, FOR THE FEDERAL RESERVE’S EXCESSIVE EXTERNAL DISCLOSURE POLICY ROAD MAP, AND FOR THE FREQUENT PUBLIC STATEMENTS OF OFFICIALS, WHICH MADE IT EASIER FOR CENTRAL BANKS TO BE BOUND BY THEIR OWN RHETORIC AND TO BECOME “PRIVILEGED PRISONERS” IN THE FACE OF CHANGES IN THE ECONOMIC ENVIRONMENT。

Bernanke had previously suggested that 98 per cent of monetary policy was based on communication, 2 per cent on operations, while Walsh wanted the model to be completely rewritten, with the core idea being to reduce market forward guidance significantly and reduce the scale of public disclosure。

Yale University Professor and former FOMC Secretary William English warned that there was a significant risk of a significant contraction in communication mechanisms, that a rapid decline in transparency could exacerbate volatility in financial markets and that policy adjustments were likely to exceed market expectations。

Communication reforms have multiple potential for landing in the context of Walsh ' s statements and multiple institutions:

• STREAMLINING OF THE QUARTERLY SEP AND EVEN PHASING OUT OF THE POINTS MAP
• (A) A SUBSTANTIAL REDUCTION IN THE TEXT OF THE FOMC POST-CONFERENCE POLICY STATEMENT
• (a) Reduction of the number of press conferences after the meetings, with the current system of eight per year, which has been in place since 2011
• The frequency of binding public speeches by Council officials has increased 20 per cent in recent years from 20 years ago。

Cindy Beaulieu, North American Chief Investment Officer of the GLW, argues that, if the dot map is abolished and the release of the cut-off conference is abolished, the volatility of the bond market will increase significantly, and every economic data will trigger an excessive market game。

The former Federal Reserve economist Claudia Sahm, who consulted the new century, assessed that the fuzzy communication model promoted by Walsh was similar to the Greenspan era, when Greenspan used vague statements as a landmark communication strategy, but even during his tenure in Greenspan, central bank transparency reforms were initiated. Incidents such as the debt-buying panic of 2013 have shown that completely vague communication can lead to sharp market sales, and most Fed observers now accept that moderate transparency is more conducive to stable expectations。

The former Fed Vice-President, Don Kohn, pointed out that it would be difficult to reverse the central bank’s communication mechanisms once they were modified, and that any adjustment would require a broad consensus among the entire FOMC once the reforms caused continued market turmoil and the cost of subsequent amendments was extremely high。

HE INDICATED THAT, SINCE ITS INTRODUCTION IN 2007, SEP HAD BEEN ABLE TO ADJUST OR ABOLISH WITHOUT A VOTE BY THE COMMITTEE, BUT THAT IN ORDER TO AVOID DEPLETING CONSENSUS ON SECONDARY ISSUES SUCH AS POINT CHARTS, GUIDELINES AND SO FORTH, THE RATE WOULD PROBABLY NOT BE ONE-OFF RADICAL REFORM AND WOULD MOVE FORWARD IN A STEP-BY-STEP PROCESS OF RETROFITTING AND OPTIMIZATION。

Market gamewash policy guidelines, gold bulls

B2BROKER’s Chief Commercial Officer, John Murillo, stated that the catalyst for the current meeting was not interest rate resolutions, but the Fed’s policy guidelines, with a core view of whether Walsh would reinforce the idea that austerity would be maintained until 2027。

He pointed out that, if a dot-tap or policy statement releases a signal from an over-anticipated eagle, asset prices would follow a fixed flow order: the United States debt market would be the first to react, the real rate of return would push up the bond yield and the short curve would fluctuate the most; and a strong rate of return would support the dollar index and direct pressure on gold。

But Murillo suggests that the Fed’s short-term policy shock will not reverse the long-term upward trend in gold. Three structural advantages sustain the value of precious metals: the diversification of reserves by central banks’ continued purchases, the need for geo-conflict Iran to sustain risk-averse assets, and the long-term fiscal deficit in the United States, which pushes the allocation of hard assets. Even if the hawk signal is released by the conference, the price of gold is weak, the downside will only attract medium- and long-term buys, making it difficult to form a sustainable bear market. Longer cycles, structural demand is the central determinant of gold price movements。