Wash is pushing for institutional reforms at the Federal Reserve, though the central bank's balance sheet reduction plan is moving slowly.

127 days after Kevin Warsh took office as Federal Reserve Chair, the institutional reforms he promised have begun to take effect. He has shortened the duration of post-Federal Open Market Committee (FOMC) press conferences, rearranged reporters’ seating, and more importantly, downplayed traditional forward guidance while refusing to provide individual interest rate forecasts in the dot plot, forming a distinct policy communication style from his predecessors. Warsh’s new policy framework places more emphasis on overall financial conditions rather than the traditional concept of the "neutral rate". He argues that the neutral rate is only "academically useful", and policy tightening should be judged by a comprehensive look at asset prices, U.S. Treasury trading, the U.S. dollar exchange rate, credit costs and supply, and commodity prices. Given that the stock market, employment and credit markets remain strong, he may support further rate hikes if inflation stays persistently high. The Federal Reserve unanimously approved a 25 basis point rate hike last week, its first such move since 2023. Markets currently price in a 70% chance of another rate hike in October, and factor in the possibility of up to two more hikes before March next year. However, progress on Warsh’s push to reduce the Fed’s $6.7 trillion balance sheet has been slow. Some FOMC members prefer to wait for reports from the five working groups he established to be submitted early next year; meanwhile, the 10-year U.S. Treasury yield has risen above 5%, creating greater headwinds for the Fed’s current balance sheet reduction and increased bond supply to the market.