🚨 Today I want to discuss a question: With the Wosh era arriving, how will the Federal Reserve's system evolve?

The policy framework of Wosh in this chart is not most troublesome because of being hawkish or dovish, but because it has brought the Fed into a very tangled state:
Dovish on interest rates, hawkish on the balance sheet, emphasizing independence in words, but in reality unable to completely cut ties with Trump, while also wanting to weaken forward guidance and reduce market reliance on Fed "spoilers."
Today, whoever sits in the Fed Chair position can no longer make decisions solely around inflation and employment as in the past. Wosh, this seasoned official, obviously knows this:
He can't openly advocate for aggressive rate hikes because Trump wouldn't like to hear it;
He also can't just talk about rapid rate cuts, or Congress will see that he's just a tool sent by the "Dunce" (referring to Trump).
So the safest approach is: rate cuts + balance sheet reduction, lower interest rates but a smaller balance sheet.
This is actually the biggest difference between Wosh and Powell—
Although Powell has wavered frequently in recent years, his core logic has remained unchanged: market expectations must not spiral out of control, so the Fed must keep communicating, keep adjusting, and keep guiding.
But Wosh clearly dislikes the Fed over-guiding the market, which is why he proposes to weaken forward guidance, reduce the dot plot influence, and even openly say he prefers "chaotic meetings."
This change is actually quite dangerous:
Over the past decade or so, the Fed's most valuable asset wasn't the interest rate itself, but expectation management.
Everyone defaults to believing the Fed will ultimately rescue the market, so they dare to hold high valuations, leverage up, and hold risky assets long-term.
Wosh's policy framework will break all of that, but the problem is that many asset prices, fiscal structures, and financial stability in the US have already become dependent on this mode, making it hard to say whether such drastic measures won't backfire.
Let me share my projection of Wosh's approach; I think the market will go through three stages:
1⃣ First stage, the market initially trades on rate cut expectations. US stocks, gold, BTC will all like the phrase "lower interest rates," especially risk assets, which will first buy into the dovish narrative.
2⃣ Second stage, the market begins to react to balance sheet reduction pressures. Long-term Treasury supply is unabsorbed, term premiums rise, liquidity isn't as abundant as imagined, and tech stocks and high-valuation assets will start to realize: rates are down, but money is harder to earn.
3⃣ Third stage, the market re-prices the Fed's credibility. If Wosh wants both independence and to cooperate with Trump; both rate cuts and balance sheet reduction; both controlling inflation and stabilizing assets—ultimately, it will likely boil down to one phrase: wanting everything, but nothing being easy.
So I currently don't believe Wosh can truly change much; maybe he's not right, or perhaps Wosh suddenly becomes a genius and takes us straight to 200,000!
The only thing certain is that trading will be even more difficult than during Powell's era!
Image from: Jin10