Summary

• New Fed Chair Kevin Warsh is already reshaping policy communication by reducing forward guidance, questioning the dot plot’s future and emphasizing real-time data, potentially increasing Treasury market volatility.
• Warsh’s push to shrink the Fed’s balance sheet and eventually eliminate MBS holdings signals a return to a more traditional, Treasury-focused policy framework.
• While markets have begun pricing in rate hikes, Warsh’s commitment to the 2% inflation target supports a higher-for-longer rate outlook and a cautious stance on easing expectations.

By Kevin Flanagan

The June FOMC meeting will go down in history as a milestone event in U.S. monetary policy. Interestingly, it was not the decision to keep interest rates on hold or remove the easing bias per