BlockBeats report: On June 17, as the Federal Reserve is set to announce its interest rate decision, several analysts at Fidelity Investments stated that the first major public appearance by new Fed Chair Kevin Warsh could become a key catalyst for market volatility, particularly in the bond market. Julian Potenza, Fidelity’s fixed income portfolio manager, said that after investors digest the policy statement and the Summary of Economic Projections, Warsh’s communication style will directly influence market reactions. He added: “Almost no one expects the Fed to take concrete action at this point, but since it remains unclear how Warsh will articulate his views, there is still room for market volatility. It is not uncommon for markets to test the waters after a new chair assumes office.”
The market generally expects the Federal Reserve to maintain its policy rate range at 3.5% to 3.75%, while shifting the language in its statement toward a more neutral stance, ending the accommodative bias that has persisted since the rate cuts began in 2024. Some officials, citing persistently high inflation, may signal a more hawkish tone through the quarterly "dot plot," suggesting the possibility of rate hikes as late as 2026 or even 2027. The $31 trillion U.S. Treasury market has recently experienced continued volatility. Amid rising oil prices due to the conflict in Iran, the 10-year Treasury yield has risen from below 4% before the conflict to over 4.4%. Interest rate swap markets have also shifted: previous expectations for rate cuts have been revised, and there is now approximately an 80% probability priced in for a 25-basis-point rate hike this year.
Fidelity Fixed Income Portfolio Manager David DeBiase said the core market divide centers on Warsh’s policy orientation. He stated, “Everyone is debating whether we’ll see the more hawkish Warsh from 10 years ago, or the more moderate version today.” DeBiase also emphasized that how Warsh articulates his understanding of inflation is critical. He noted that during his nomination confirmation process, Warsh mentioned “trimmed mean inflation” and the disinflationary effects of AI, and the market seeks further clarity on the basis for these views and how they were formed. (Jin10)