Warsh pushes for Fed institutional reform, but balance sheet reduction plan progresses slowly.

BlockBeats news, September 25 — 127 days after Kevin Warsh took office as Federal Reserve Chairman, the institutional changes he promised have begun to take shape. He has shortened the length of post-FOMC press conferences, adjusted reporters' seating arrangements, and more importantly, downplayed traditional forward guidance and refused to provide his personal rate projections in the dot plot, forming a policy communication style markedly different from his predecessor.

Warsh's new policy framework places greater emphasis on overall financial conditions rather than the traditional concept of the "neutral rate." He believes the neutral rate is only "academically useful," and that judging whether policy is tight should involve a comprehensive observation of asset prices, Treasury trading, the dollar exchange rate, credit costs and supply, and commodity prices. Given that stock markets, employment, and credit markets remain strong, he may support further rate hikes if inflation stays persistently high.

The Fed unanimously approved a 25 basis point rate hike last week, the first increase since 2023. Markets currently price a 70% probability of another rate hike in October and factor in the possibility of up to two more hikes before March next year.

However, Warsh's push to shrink the Fed's $6.7 trillion balance sheet has been slower. Some FOMC members prefer to wait for reports from the five working groups he established, due early next year; meanwhile, the 10-year Treasury yield has risen above 5%, posing greater obstacles for the Fed to continue balance sheet reduction and increase bond supply to the market.