Federal Reserve Dot Plot Suspense Overlaps Communication Mechanism Reform, Raising Risk of Market Volatility

On June 17, the Federal Reserve will release its latest interest rate decision at 2:00 a.m. Beijing time on Thursday. Half an hour later, newly appointed Chair Kevin Wors will hold his first press conference since taking office. The market has fully priced in that this meeting will keep the benchmark interest rate unchanged.

At present, market attention is not on a simple interest rate adjustment. Instead, it centers on three major primary themes: the direction of the in-year interest rate path and changes in the dot plot, controversies over the Federal Reserve’s policy independence, and the comprehensive reform of the central bank’s communication mechanism that Wors is pushing.

Market consensus broadly expects that the upcoming quarterly “Summary of Economic Projections” (SEP) dot plot will show a significant hawkish shift. This also sharply contrasts with the March meeting, when most officials leaned toward rate cuts within the year; now, most decision-makers expect rates to remain unchanged this year.

Some members even note rate-hike expectations in the dot plot, to guard against the risk of inflation continuing to rise. This is because, as employment and inflation data keep changing, the discussion focus of the FOMC is shifting from “when to cut rates” to “whether to restart rate hikes.”

In addition, this dot plot will also be updated alongside economic forecasts. JPMorgan’s Chief U.S. Economist Michael Feroli expects that Federal Reserve officials will lower their year-end unemployment rate estimate to 4.3%, consistent with the actual unemployment rate over the past three months.

Meanwhile, officials will raise their core PCE inflation forecast to 2.9%. Some economists even expect that this indicator will break above 3%, providing fundamental support for hawkish expectations.

Besides interest-rate path adjustments, Wors has repeatedly criticized the current communication framework even before taking office. He believes that the Federal Reserve discloses too much about policy routes, and that officials frequently make statements, which would limit policy flexibility and leave decision-makers constrained by their own remarks.

Wors also hopes to completely rewrite the “monetary policy relies 98% on communication and 2% on operations” concept and framework put forward by Bernanke. The core idea is to substantially reduce forward-looking guidance to the market and to scale back the scope of public information disclosure.

However, there are also differing views in the market that the existing communication mechanism has greatly narrowed potential risks. If transparency drops rapidly and policy adjustments occur, it could intensify volatility in financial markets and easily exceed market expectations.

#美联储 # Wors’ debut